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Article: Limits to redistribution and intertemporal wedges: implications of Pareto optimality with private information.
- Article from:
- Economic Quarterly
- Article date:
- March 22, 2008
- Author:
CopyrightCOPYRIGHT 2008 Federal Reserve Bank of Richmond. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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Traditionally an object of interest in microeconomics, models with privately informed agents have recently been used to study numerous topics in macroeconomics. (1) Characterization of Pareto-optimal allocations is an essential step in these studies, because the structure of optimal institutions of macroeconomic interest depends on the structure of optimal allocations. In models with privately informed agents, however, characterization of optimal allocations is a complicated problem, relative to models in which all relevant information is publicly available, especially in dynamic settings with heterogenous agents, which are of particular interest in macroeconomics.