NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Optimal Savings Distortions with Recursive Preferences

Emmanuel Farhi, Iván Werning

NBER Working Paper No. 13720
Issued in January 2008
NBER Program(s):   EFG   PE

This paper derives an intertemporal optimality condition for economies with private information, focusing on a class of recursive preferences. By comparing it to the situation where agents can freely save in a risk-free asset market, we derive the optimal savings distortions necessary for constrained optimality. Our recursive preferences are homogeneous and satisfy a balanced growth condition, while allowing us to separate the role of risk aversion and intertemporal elasticity of substitution. We perform some quantitative exercises that disentangle the respective roles played by these two parameters play in opt8imal distortions and the implied welfare gains.

download in pdf format
   (272 K)

email paper

This paper is available as PDF (272 K) or via email.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Published: Farhi, Emmanuel & Werning, Iván, 2008. "Optimal savings distortions with recursive preferences," Journal of Monetary Economics, Elsevier, vol. 55(1), pages 21-42, January.

Users who downloaded this paper also downloaded these:
Adams, Clemmons, and Stephan w10875 Standing on Academic Shoulders: Measuring Scientific Influence in Universities
Olken and Barron w13145 The Simple Economics of Extortion: Evidence from Trucking in Aceh
Aten Cities in Brazil: An Interarea Price Comparison
Golosov and Tsyvinski w10792 Designing Optimal Disability Insurance: A Case for Asset Testing
Farhi and Werning w16749 Insurance and Taxation over the Life Cycle
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us