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ps9macro2sp08

# ps9macro2sp08 - Econ 387L Macro II Spring 2008 University...

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Econ 387L: Macro II Spring 2008, University of Texas Instructor: Dean Corbae Problem Set #9 - Due 4/10/08 Consider a version of the environment studied by Stokey (1989) that was taught in class. Let ( x, X, y ) be the choice variables available to a representative agent, the market as a whole, and a benevolent government, respectively, where x, X X = { x L , x H } and y Y = { y L , y H } . Let per period payoffs to the government be denoted u ( x i , X j , y k ) . In the case where x j = X j let payoffs be given as in the table u ( x j , X j , y k ) X L X H y L 0 20 y H 1 10 The values of u ( x i , X j , y k ) not reported in the table are such that the competitive equilibria (i.e. ones where x = X = h ( y )) are the outcome pairs denoted by the asterisk. 1 For completeness assume that if an agent deviates, she gets exactly what the average person gets in all cases except one (where x L , X H , y L ). In particular, we assume u ( x L , X H , y L ) > 20 and for all other cases she gets the average payoff (i.e.

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