Social optima in economies with heterogeneous agents

Galo Nuño, Benjamin Moll

Research output: Contribution to journalArticle

5 Scopus citations

Abstract

This paper analyzes the problem of computing the social optimum in models with heterogeneous agents subject to idiosyncratic shocks. This is equivalent to a deterministic optimal control problem in which the state variable is the infinite-dimensional cross-sectional distribution. We show how, in continuous time, the problem can be broken down into two finite-dimensional partial differential equations: a dynamic programming equation and the law of motion of the distribution, and we introduce a new numerical algorithm to solve it. We illustrate this methodology with two examples: social optima in an Aiyagari economy with stochastic lifetimes and in a model of on-the-job search with learning.

Original languageEnglish (US)
Pages (from-to)150-180
Number of pages31
JournalReview of Economic Dynamics
Volume28
DOIs
StatePublished - Apr 2018

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Keywords

  • Gateaux derivative
  • Kolmogorov forward equation
  • Mean field control
  • Social welfare function
  • Wealth distribution

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