International Journal of Economic Theory6 11–28, 2010.
Summary. The Phelps–Koopmans theorem states that if every limit point of a path of capital stocks exceeds the “golden rule,” then that path is inefficient: there is another feasible path from the same initial stock that provides at least as much consumption at every date and strictly more consumption at some date. I show that in a model with nonconvex technologies and preferences, the theorem is false in a strong sense. Not only can there be efficient paths with capital stocks forever above and bounded away from a unique golden rule, such paths can also be optimal under the infinite discounted sum of a one-period utility function.
(with Garance Genicot), Review of Economic Studies70, 87-113, 2003.
Summary. We study informal insurance within communities, explicitly recognizing the possibility that subgroups of individuals may destabilize insurance arrangements among the larger group. We therefore consider self-enforcing risk-sharing agreements that are robust not only to single-person deviations but also to potential deviations by subgroups. Variant on an Example in the paper. A conjecture related to the paper.
A sender is about to come into possession of an object of heterogeneous quality. Prior to knowing that quality, she commits to a categorization. That is, she partitions the set of qualities intosubsets — some possibly singletons — and verifiably commits to reveal the element in which the quality belongs. The categoriesmust be monotone. Our main results fully describe the profit-maximizing categorizationfor any pair of priors over object quality held by sender and receiver. We apply these results to the design of educational grades.