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Business Cycle Fluctuations in Mirrlees Economies: The Case of i.i.d. Shocks

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  • Marcelo Veracierto

Abstract

I consider a real business cycle model in which agents have private information about the i.i.d. realizations of their value of leisure. For the case of logarithmic preferences I provide an analytical characterization of the solution to the associated mechanism design problem. Moreover, I show a striking irrelevance result: That the stationary behavior of all aggregate variables are exactly the same in the private information economy as in the full information case. Numerical simulations indicate that the irrelevance result approximately holds for more general CRRA preferences.

Suggested Citation

  • Marcelo Veracierto, 2019. "Business Cycle Fluctuations in Mirrlees Economies: The Case of i.i.d. Shocks," Working Paper Series WP 2020-04, Federal Reserve Bank of Chicago.
    • Handle: RePEc:fip:fedhwp:87508
    DOI: 10.21033/wp-2020-04
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    More about this item

    Keywords

    heterogeneous agent; business cycles; private information; social insurance; RBC model; Log consumption; optimal contracts;
    All these keywords.

    JEL classification:

    • D16 - Microeconomics - - Household Behavior - - - Collaborative Consumption
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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