Stéphane Villeneuve (Toulouse School of Economics)

Titre : Dynamic Efficiency With Private Information

Abstract:  

This paper studies efficient allocation of capital and consumption in a production economy with private information and aggregate risk. It extends the influential paper of Atkeson and Lucas (1992), who had studied the same problem in an exchange economy. We use mean-field control techniques to determine the functional Hamilton Jacobi Bellman equation that characterizes constrained-efficient allocations. For Constant Relative Risk Aversion utilities, the solution is surprisingly simple. It can be decentralized by a single market in which the good is traded against a safe asset. The key to dynamic efficiency is for the principal to set the appropriate growth rate of the safe asset.

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