Unformatted text preview: Note that at the eﬃcient allocation the individuals are “saving constrained”. In other words, if individuals can privately save, they will choose to do so and it is desirable for planer to prevent them from doing that. Another way of seeing this is the following: suppose ( 45 ) holds. Then we must have βR u ( c * t ( θ T )) < X θ t +1  θ t π ( θ t +1 ) π ( θ t ) 1 u ( c * t +1 ( θ T )) Now suppose the planer wants to increase utility at time t by ± and decrease it at time t + 1 by β1 ± . The cost of increase of utility in period t is u ( c t ( θ T )) /± . On the other hand planer hands in u ( c t +1 ( θ T )) /± less at each θ t +1 that follows θ t . Therefore it can free up resources. 42...
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 Fall '10
 wong
 Economics, Calculus, Utility, Euler equation, Werning, Farhi, additive separability assumption

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