Christian Ghiglino

Strategic information transmission networks

We study a model of multi-player communication. Privately informed decision makers have different preferences about the actions they take, and communicate to influence each othersʼ actions in their favor. We prove that the equilibrium capability of any player to send a truthful message to a set of players depends not only on the preference composition of those players, but also on the number of players truthfully communicating with each one of them. We establish that the equilibrium welfare depends not only on the number of truthful messages sent in equilibrium, but also on how evenly truthful messages are distributed across decision makers.

Poverty Traps, Indeterminacy, and the Wealth Distribution

We consider a one-sector growth model in continuous time with a production externality and endogenous labor supply. There is a continuum of households who have identical preferences but differ with respect to their initial wealth. We show that there exist economies such that an indeterminate steady state exists for some wealth distribution but not for others. A second result is that a redistribution of wealth may drive the economy from a steady state with strictly positive output to a poverty trap in which output converges asymptotically to zero. These results indicate that differences in the wealth distribution may be responsible for drastic differences in the long-run standard of living. Journal of Economic Literature Classification Numbers: D31, D50, O41.

Endowments, stability, and fluctuations in OG models

Abstract In the present paper we consider a stationary overlapping-generations model with many commodities and many different consumers and investigate how the distribution of endowments influences the dynamical properties of the model such as stability of steady states and existence of cycles. Our main results are: 1. 1) Preferences place no restrictions on stability properties of steady states; 2. 2) cycles exist for all aggregate savings (real or nominal); and 3. 3) equilibria of economies with equilibria close to a no-trade equilibrium with constant prices are either steady states or equilibria which converge to a steady state in backward time and another steady state in forward time. These results are obtained generically in utility functions and do not depend on whether the utility functions are of the discounted form or not.

Introduction to a General Equilibrium Approach to Economic Growth

Abstract Endogenous growth theory has had some success in explaining the observed data related to the process of economic growth. However, the results of the models in this literature are typically very sensitive to their micro-economic structure. It is therefore important to understand how the growth process behaves under more general specifications of such features as the number of commodities, the number and preferences of consumers, the factors of production, and the financial and information structures. In other words, valuable insights can be gained by integrating growth theory into the framework of general equilibrium theory. The summary of the papers in this volume, focuses on seven issues that are crucial to this integration and highlights the contributions of the papers to the resolution of these issues. Journal of Economic Literature Classification Numbers: C61, D50, D90, F43, O30, O41.

Random walk to innovation: Why productivity follows a power law

This paper examines a search model in which knowledge is created as rational, but poorly informed, innovators obtain new ideas from combinations of existing ideas. We assume that the productivity of an idea is stochastic and depends on the productivity of the parental ideas. Importantly, we assume that the contribution of these parents to the productivity of the final idea is enhanced by prior use of these in knowledge creation. We identify conditions on the search costs leading to two properties: 1) the tail of the distribution of the productivity of innovations is a power law, and 2) the number of citations, i.e., times an idea is used in the process of innovation, follows a displaced power law. Both these properties are consistent with the available empirical evidence on the productivity of innovations and on patent citations.

The economic effects of restrictions on government budget deficits

In overlapping-generations economies with perfect financial markets and lumpsum taxation, restrictions on the government budget deficits do not limit the set of achievable allocations. For economies in which tax instruments are distortionary and limited in number, deficits are irrelevant only in the unrealistic case in which the number of tax instruments is large relative to the number of policy goals. In particular, if the government can use only anonymous consumption taxes, then achieving the prescribed deficits without changing the equilibrium allocation will typically be impossible when the number of consumers exceeds the number of commodities. A similar result holds if consumer credit is (exogenously) restricted. Surprisingly, in this case, distortionary taxes may be more likely than lump-sum taxes to lead to the irrelevance of government deficits. Journal of Economic Literature Classification Numbers: D51, D91, E32. Keywords: Balanced Budget, Balanced-Budget Amendment, Burden of the Public Debt, Comparative Statics, Consumption Taxes, Credit Restrictions, Distortionary Taxes, Economic Policy, Government Budget Deficit, Maastricht Treaty, Optimal Taxation, Overlapping Generations.

Wealth inequality and dynamic stability

In this paper we explore the link between wealth inequality and stability in a two-sector neoclassical growth model with heterogeneous agents. The stability of the steady state depends on the various parameters of the model and in particular on individual preferences. We show that when consumers have identical preferences and the inverse of absolute risk aversion (or risk tolerance) is a strictly convex function, inequality is a factor that favors instability. In the opposite case, inequality favors stability. Our characterization also shows that whenever absolute risk tolerance is linear, as when preferences exhibit hyperbolic absolute risk aversion (HARA), wealth heterogeneity is neutral. As there is not yet evidence on the concavity of absolute risk tolerance, our results unfortunately do not lead to a unique conclusion on the sign of the effect of wealth inequality on stability.

Optimal policy in OG models

In the present paper general stationary overlapping generations economies with many commodities in every period and many different consumers in every generation are considered. A government maximizes an utilitarian social welfare function, that is the sum of weighted averages of utilities for generations, through fiscal policy, i.e. monetary transfers and taxes. Both situations with and without time discounting are considered. It is shown that if the discount factor is sufficiently close to one then the optimal policy stabilizes the economy, i.e. the equilibrium path has the turnpike property. Moreover the fiscal policy is shown to be time-consistent.

No-trade and uniqueness of steady states

Abstract In the present paper a stationary overlapping-generations model with many commodities and many different consumers is considered. The main result is that economies with endowments near no-trade equilibria with constant prices have a unique balanced steady state and a unique golden-rule steady state. These results are obtained generically in utility functions and do not depend on whether the utility functions are of the discounted form or not.

Wealth inequality, preference heterogeneity and macroeconomic volatility in two-sector economies

Abstract We explore the link between wealth inequality, preference heterogeneity and macroeconomic volatility in a two-sector neoclassical growth model. First we prove that, if agents have homogeneous preferences, when the absolute risk tolerance is a strictly convex (concave) function, sufficiently high (low) levels of wealth inequality may lead to endogenous fluctuations in the neighborhood of the steady state. Second, we consider the effects of preference heterogeneity when agents are homogeneous with respect to their wealth. We show that when the utility function belongs to the HARA class, sufficiently high levels of preference heterogeneity may lead to endogenous fluctuations in the neighborhood of the steady state if the elasticity of intertemporal substitution in consumption is greater than one.