On the possibility of Krusell-Smith Equilibria
Résumé
Solutions to macroeconomic models with wealth inequality and aggregate shocks often rely on the assumption of limited but common information among households. We show that this assumption is inconsistent with rational information choice for plausible information costs. To do so, we embed information choice into the workhorse heterogeneous-agent model with aggregate risk (Krusell and Smith, 1998). First, we demonstrate that the benefits of acquiring more precise information about the state of the economy depend crucially on household wealth. Second, we show that such heterogeneous incentives to acquire information combine with the strategic substitutability of savings choices to imply that equilibria in which households acquire the same information do not exist for plausible information costs. Finally, we document that a representative-agent equilibrium may not exist even in the absence of exogenous sources of wealth heterogeneity.
Domaines
Economies et financesFormat du dépôt | Notice |
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Type de dépôt | Article dans une revue |
Titre |
en
On the possibility of Krusell-Smith Equilibria
|
Résumé |
en
Solutions to macroeconomic models with wealth inequality and aggregate shocks often rely on the assumption of limited but common information among households. We show that this assumption is inconsistent with rational information choice for plausible information costs. To do so, we embed information choice into the workhorse heterogeneous-agent model with aggregate risk (Krusell and Smith, 1998). First, we demonstrate that the benefits of acquiring more precise information about the state of the economy depend crucially on household wealth. Second, we show that such heterogeneous incentives to acquire information combine with the strategic substitutability of savings choices to imply that equilibria in which households acquire the same information do not exist for plausible information costs. Finally, we document that a representative-agent equilibrium may not exist even in the absence of exogenous sources of wealth heterogeneity.
|
Auteur(s) |
Tobias Broer
1, 2
, Alexandre Kohlhas
3
, Kurt Mitman
3
, Kathrin Schlafmann
4
1
PSE -
Paris School of Economics
( 301309 )
- 48 boulevard Jourdan 75014 Paris
- France
2
PJSE -
Paris Jourdan Sciences Economiques
( 578027 )
- 48 boulevard Jourdan 75014 Paris
- France
3
IIES -
Institute for International Economic Studies
( 543770 )
- Suède
4
CBS -
Copenhagen Business School [Copenhagen]
( 300903 )
- Solbjerg Pl. 3, 2000 Frederiksberg, Copenhagen
- Danemark
|
Langue du document |
Anglais
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Nom de la revue |
|
Vulgarisation |
Non
|
Comité de lecture |
Oui
|
Audience |
Internationale
|
Date de publication |
2022-08
|
Volume |
141
|
Public visé |
Scientifique
|
Numéro d'article |
|
Domaine(s) |
|
Mots-clés (JEL) |
|
Mots-clés |
en
Expectations, Heterogeneity, Information
|
DOI | 10.1016/j.jedc.2022.104391 |
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