A BEJM Topics article.

Abstract

This paper provides a general methodology for introducing capital accumulation into economies with private information and heterogeneous agents. The agents operate a stochastic neoclassical production technology with capital and labor input. I study a moral hazard economy with unobservable input (hidden action). I characterize the efficient allocation of capital, labor, and consumption in a stationary recursive competitive equilibrium. The economy is decentralized by the component planner approach developed by Atkeson and Lucas (1995). Accumulation of capital is facilitated by a "capital planner" who serves as a financial intermediary for the component planners. In the unique, feasible and non-degenerate stationary equilibrium, private information lowers the market-clearing interest rate below agents' discount rate.

Submitted: October 11, 2003 · Accepted: November 13, 2005 · Published: December 9, 2005

Originally published in Topics in Macroeconomics.

Recommended Citation

Bohacek, Radim (2005) "Capital Accumulation in Private Information Economies," Topics in Macroeconomics: Vol. 5 : Iss. 1, Article 24.
Available at: http://www.bepress.com/bejm/topics/vol5/iss1/art24