Neoclassical Growth with Limited Commitment

Dirk Krueger and Harald Uhlig ()

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: This paper characterizes the stationary equilibrium of a continuous-time neoclassical production economy with capital accumulation in which agents can insure against idiosyncratic income risk by trading agent-shock contingent assets, subject to limited commitment constraints that rule out selling these assets short. For a general N-state Poisson labor productivity process we characterize the optimal consumption-asset allocation, the stationary asset distribution as well as the aggregate supply of capital by the household sector. For the special case in which production is Cobb-Douglas, agent labor productivity takes two values, one of which is zero, and agents have log-utility, we solve the equilibrium interest rate, capital stock and the consumption distribution in closed form. The paper therefore provides a tractable alternative to the standard incomplete markets general equilibrium model as in Aiyagari (1994).

Keywords: Idiosyncratic Risk; Limited Commitment; Stationary Equilibrium (search for similar items in EconPapers)
JEL-codes: D11 D91 E21 G22 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2024-03-12
New Economics Papers: this item is included in nep-cta, nep-dge, nep-fdg and nep-gro
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://economics.sas.upenn.edu/system/files/worki ... per%20Submission.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden

Related works:
Working Paper: Neoclassical Growth with Limited Commitment (2024)
Working Paper: Neoclassical Growth with Limited Commitment (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pen:papers:22-023

Access Statistics for this paper

More papers in PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania 133 South 36th Street, Philadelphia, PA 19104. Contact information at EDIRC.
Bibliographic data for series maintained by Administrator ().