THE RECURSIVE CORE

Core allocations may be defined for infinite horizon capital accumulat ion models. If agents cannot trust each other in the sense of Gale, th en agents may renege on their commitments; their decisions appear time inconsistent. A core allocation is a recursive core allocation provid ed no coalition can improve upon its consumption stream at any time gi ven its accumulation of assets up to that period. We show for every al location of consumption in the initial core, one can find a distributi on of capital stocks among the agents where no coalition of agents wil l break the initial core contract at any date. It follows that if the proper distribution of the streams of capital is achieved, then the al location in the core is also in the recursive core. The latter therefo re forges a link between the distribution of wealth (capital), the pro blem of trust, and time consistent intertemporal contracts.