We consider an environment in which agents' skills are private information and follow arbitrary stochastic processes. We prove that it is typically Pareto optimal for an individual's marginal benefit of investing in capital to exceed his marginal cost of doing so. This wedge is consistent with a...

We analyze a dynamic stochastic general‐equilibrium (DSGE) model with an externality—through climate change—from using fossil energy. Our central result is a simple formula for the marginal externality damage of emissions (or, equivalently, for the optimal carbon tax). This formula, which...

We study the dynamic taxation of capital and labor in the Ramsey model under the assumption that taxes and public good provision are decided by a self-interested politician who cannot commit to policies. We show that, as long as the politician is as patient as the citizens, the Chamley-Judd...

The paper studies how asset prices are determined in a decentralized market with asymmetric information about asset values. We consider an economy in which a large number of agents trade two assets in bilateral meetings. A fraction of the agents has private information about the asset values. We...

We analyze optimal pension systems relying on simple policy instruments in a lifecycle environment which admits endogenous decisions of how much to work as well as when to retire. The optimality in this context means the highest welfare that can be achieved within a restricted set of...

We develop a dynamic theory of resource wars and study the conditions under which such wars can be prevented. Our focus is on the interaction between the scarcity of resources and the incentives for war in the presence of limited commitment. We show that a key parameter determining the...

We consider environments in which agents other than innovator receive the signals about the quality of innovation. We study whether mechanisms can be found which exploit market information to provide appropriate incentives for innovation. If such mechanisms are used, the innovator has incentives...