A planner sets a lump sum transfer and a linear tax on labor income in an economy with incomplete markets, heterogeneous agents, and aggregate shocks. The planner's concerns about redistribution impart a welfare cost to fluctuating transfers. The distribution of net asset holdings across agents...

We study the optimal provision of insurance against unobservable idiosyncratic shocks in a setting in which a benevolent government cannot commit. A continuum of agents and the government play an infinitely repeated game. Actions of the government are constrained only by the threat of reverting...

We study the optimal Mirrlees taxation problem in a dynamic economy with idiosyncratic (productivity or preference) shocks. In contrast to the standard approach, which implicitly assumes that the mechanism is operated by a benevolent planner with full commitment power, we assume that any...

In this paper, we generalize the notion of Pareto-efficiency to make it applicable to environments with endogenous populations. Two efficiency concepts are proposed, P-efficiency and A-efficiency. The two concepts differ in how they treat people who are not born. We show how these concepts...

The paper analyzes an implementation of an optimal disability insurance system as a competitive equilibrium with taxes. The problem is modeled as a dynamic mechanism design problem in which disability is unobservable. We show that an asset-tested disability system in which a disability transfer...

This paper studies a mechanism design model of financial intermediation. There are two informational frictions: agents receive unobservable shocks and can participate in markets by engaging in trades unobservable to intermediaries. Without regulations, intermediaries provide no risk sharing...

We study optimal labor and savings distortions in a lifecycle model with idiosyncratic shocks. We show a tight connection between its recursive formulation and a static Mirrlees model with two goods, which allows us to derive elasticity-based expressions for the dynamic optimal distortions. We...

We analyze a dynamic stochastic general-equilibrium (DSGE) model with an externality through climate change from using fossil energy. A central result of our paper is an analytical derivation of a simple formula for the marginal externality damage of emissions. This formula, which holds under...

The paper studies asset pricing in informationally decentralized markets. These markets have two key frictions: trading is decentralized (bilateral), and some agents have private information. We analyze how uninformed agents acquire information over time from their bilateral trades. In...

We study the constrained Pareto efficient allocations in a dynamic production economy in which the group that holds political power decides the allocation of resources. We show that Pareto efficient allocations take a quasi-Markovian structure and can be represented recursively as a function of...