Efficient Allocations with Hidden Income and Hidden Storage

By Harold L. Cole, Narayana Kocherlakota. 2001

259 citations recorded by the source corpus.

We consider an environment in which individuals receive income shocks that are unobservable to others and can privately store resources. We provide a simple characterization of the unique efficient allocation of consumption in cases in which the rate of return on storage is sufficiently high or, alternatively, in which the worst possible outcome is sufficiently dire. We show that, unlike in environments without unobservable storage, the symmetric efficient allocation of consumption is decentralizable through a competitive asset market in which individuals trade riskfree bonds among themselves.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/120fe33a93b3d3cbd83773eb03c656599a0d17f8

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Citations in the corpus

The effectiveness of government debt and transfers as insurance (2001, background): “The paper by Cole and Kocherlakota (1998) supports the view that a limited number of financial assets (e.g. one risk-free bond) may provide the best feasible insurance.”
Formal and informal risk sharing in LDCs : theory and empirical evidence (2008, background): “As pointed out by Cole and Kocherlakota (2001), hidden savings drastically limit the ability to use even formal contracts.”
Uninsured Idiosyncratic Investment Risk (2005, unknown): “are private information ( Cole and Kocherlakota, 2001 ).”
Risk Sharing in Private Information Models with Asset Accumulation: Explaining the Excess Smoothness of Consumption (2007, methodology): “Our model nests the framework studied by Allen (1985) and Cole and Kocherlakota (2001) (ACK), who show that in a pure adverse selection model with hidden asset accumulation the optimal allocation of consumption coincides with the one the agents would get by insuring themselves through borrowing and…”
Taxing the Rich (2016, background): “Contributions include Cole and Kocherlakota (2001), or Golosov and Tsyvinski (2007).”
Consumption and Saving: Models of Intertemporal Allocation and Their Implications for Public Policy (2010, unknown): “The Cole and Kocherlakota (2001) result, which is reminiscent of the results in Allen (1985), is an important one, even though some recent papers have claimed that it is not very robust.”
Optimal Taxation with Endogenous Insurance Markets (2007, background): “This finding stands in contrast with the environments where agent’s endowment is not observable such as environments studied in Allen (1985) and Cole and Kocherlakota (2001).”
Consumption and labor supply with partial insurance: An analytical framework (2014, unknown): “We then use the residuals from these regressions to construct variances and covariances in levels and first-differences for all available age/year cells constructed by grouping observations in any given year into 31 age classes: “age” 27 (25-29), “age” 28 (26-30) and so on until “age” 57 (55-59).”
Winners and Losers in Housing Markets (2011, unknown): “Cole and Kocherlakota (2001) show that, if agents can misrepresent their idiosyncratic income and can save privately, the optimal contract is a simple debt contract with a credit limit.”
Growth and welfare effects of business cycles in economies with idiosyncratic human capital risk (2003, background): “The results by Atkeson and Lucas (1992) and Cole and Kocherlakota (2001) taken together show that the relationship between competitive allocations and constrained-efficient allocations crucially depends on the nature of private information.”