On the Possibility of Krusell-Smith Equilibria

Tobias Broer*, Alexandre N. Kohlhas, Kurt Mitman, Kathrin Schlafmann

*Corresponding author af dette arbejde

Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review


Solutions to macroeconomic models with wealth inequality and aggregate shocks often rely on the assumption of limited but common information among households. We show that this assumption is inconsistent with rational information choice for plausible information costs. To do so, we embed information choice into the workhorse heterogeneous-agent model with aggregate risk (Krusell and Smith, 1998). First, we demonstrate that the benefits of acquiring more precise information about the state of the economy depend crucially on household wealth. Second, we show that such heterogeneous incentives to acquire information combine with the strategic substitutability of savings choices to imply that equilibria in which households acquire the same information do not exist for plausible information costs. Finally, we document that a representative-agent equilibrium may not exist even in the absence of exogenous sources of wealth heterogeneity.
TidsskriftJournal of Economic Dynamics and Control
Antal sider19
StatusUdgivet - aug. 2022

Bibliografisk note

Published online: 27 April 2022.


  • Expectations
  • Heterogeneity
  • Information