career concerns incentives and endogenous learning in labour markets models of career concerns provide a framework for analyzing the actions that may be taken by a manager in an attempt to influence performance signals that the market uses to update its beliefs on her productivity and the incentive problem that arises if such actions do not coincide with those that maximize the financial return to a firm s owner this survey provides a formal introduction to the main types of models of career concerns hidden action and hidden information and discusses some extensions of these models applications of the career concerns framework to explain aspects of managerial behavior and the form of labor market institutions are emphasized copyright 1992 by blackwell publishers ltd

fertility social mobility and long run inequality dynastic altruistic models with endogenous fertility have been shown to be unable to generate enough intergenerational persistence using a bewley model with endogenous fertility we show that it is possible to recover persistence key ingredients for our result include exponential child discounting discrete number of children diminishing costs of child rearing and an elasticity of intergenerational substitution larger than one our model provides a unified framework of analysis for long run inequality that incorporates fertility choices

wealth distribution in life cycle economies abstract this paper compares the age wealth distribution produced in life cycle economies to the corresponding distribution in the us economy the idea is to calibrate the model economies to match features of the us earnings distribution and then examine the wealth distribution implications of the model economies the findings are that the calibrated model economies with earnings and lifetime uncertainty can replicate measures of both aggregate wealth and transfer wealth in the us furthermore the model economies produce the us wealth gini and a significant fraction of the wealth inequality within age groups however the model economies produce less than half the fraction of wealth held by the top 1 percent of us households

on the distribution and dynamics of health care costs using data from the health and retirement survey and the assets and health dynamics of the oldest old survey we estimate the stochastic process that determines both the distribution and dynamics of health care costs we find that the data generating process for log health costs is well represented as the sum of a white noise process and a highly persistent ar 1 process we also find that the innovations to this process can be modelled with a normal distribution that has been adjusted to capture the risk of catastrophic health care costs simulating this model we find that in any given year 0 1 of households receive a health cost shock with a present value of at least 125 000 copyright 2004 john wiley sons ltd

wealth distribution with random discount factors abstract to explain the pareto tail behavior empirically observed in wealth distributions the quantitative macro literature has occasionally assumed that agents have random discount factors this paper formally proves that the stationary wealth distribution in a simple huggett model with random discounting has power law tails and characterizes the pareto exponents analytically i find that in general there is no clear relationship between the return on wealth and inequality and that the pareto exponent is highly sensitive to the persistence of the discount factor process i also provide a practical guidance for how to characterize the pareto exponents in richer models

stock market expectations of dutch households despite its importance for the analysis of life cycle behavior and in particular retirement planning stock ownership by private households is poorly understood among other approaches to investigate this puzzle recent research has started to elicit private households expectations of stock market returns this paper reports findings from a study that collected data over a two year period both on households stock market expectations subjective probabilities of gains or losses and on whether they own stocks we document substantial heterogeneity in financial market expectations expectations are correlated with stock ownership over the two years of our data stock market prices increased and expectations of future stock market price changes also increased lending support to the view that expectations are influenced by recent stock gains or losses

uncertain medical expenses and precautionary saving near the end of the life cycle this paper introduces a dynamic structural model of household consumption decisions in which elderly families consider the effects of uncertain future medical expenses when deciding current levels of consumption the model with uncertain medical expenses implies a potentially important role for precautionary saving incentives to explain slow rates of dissaving among elderly americans during retirement rather than just simulating the stochastic dynamic model preference parameters are estimated using panel data on health wealth and expenditures for retired families the health uncertainty model predicts consumption levels closer to observed expenditures than a life cycle model with uncertain longevity however elderly families typically dissave their financial assets more slowly than even the baseline health uncertainty model predicts is optimal

health care reform or more affordable health care this article investigates the impact on the u s economy of making health care more affordable we compare health care cost reductions with the patient protection and affordable care act aca using a rich life cycle general equilibrium model with heterogeneous agents we evaluate a wide range of cost reductions ranging from 0 64 realistic and feasible to 29 5 equivalence with oecd our results show that the aca is more effective in reducing uninsured population than all cost reductions considered this result holds throughout the life cycle and for the most fragile part of the population the poorest the less educated and those with bad health realistic and feasible cost reductions are less welfare improving than the aca the increase of welfare induced by the reform is around 7 8 times higher than the increase provided by cost reductions besides the poorer are more benefited than the richer after the reform while the opposite occurs after cost reductions finally to obtain the same welfare increase of the aca medical costs have to decrease by 5 21 a very hard task these results provide support for the aca against opponents who might present cost reductions as alternatives

accounting for the u s earnings and wealth inequality we show that a theory of earnings and wealth inequality based on the optimal choices of ex ante identical households that face uninsured idiosyncratic shocks to their endowments of efficiency labor units accounts for the u s earnings and wealth inequality almost exactly

are americans saving optimally for retirement we solve each household s optimal saving decisions using a life cycle model that incorporates uncertain lifetimes uninsurable earnings and medical expenses progressive taxation government transfers and pension and social security benefits with optimal decision rules we compare household by household wealth predictions from the life cycle model using a nationally representative sample we find making use of household specific earnings histories that the model accounts for more than 80 percent of the 1992 cross sectional variation in wealth fewer than 20 percent of households have less wealth than their optimal targets and the wealth deficit of those who are undersaving is generally small

understanding why high income households save more than low income households abstract we use a calibrated life cycle model to evaluate why high income households save as a group a much higher fraction of income than do low income households in us cross section data we find that 1 age and relatively permanent earnings differences across households together with the structure of the us social security system are sufficient to replicate this fact 2 without social security the model economies still produce large differences in saving rates across income groups and 3 purely temporary earnings shocks of the magnitude estimated in us data alter only slightly the saving rates of high and low income households

income and wealth heterogeneity in the macroeconomy how do movements in the distribution of income and wealth affect the macroeconomy we analyze this question using a calibrated version of the stochastic growth model with partially uninsurable idiosyncratic risk and movements in aggregate productivity our main finding is that in the stationary stochastic equilibrium the behavior of the macroeconomic aggregates can be almost perfectly described using only the mean of the wealth distribution this result is robust to substantial changes in both parameter values and model specification our benchmark model whose only difference from the representative agent framework is the existence of uninsurable idiosyncratic risk displays far less cross sectional dispersion and skewness in wealth than u s data however an extension that relies on a small amount of heterogeneity in thrift does succeed in replicating the key features of the wealth data furthermore this extension features aggregate time series that depart significantly from permanent income behavior

simulating the transmission of wealth inequality via bequests abstract this paper develops calibrates and simulates a dynamic 88 period olg model to study the intergenerational transmission of u s wealth inequality via bequests the model features marriage realistic fertility patterns random death assortative mating based on skills heterogeneous skill endowments heterogeneous rates of return skill inheritability progressive income taxation and resource annuitization via social security all bequests arise from imperfect annuitization nonetheless the model generates a realistic ratio of aggregate wealth to aggregate labor income a realistic bequest flow relative to the stock of wealth and a realistic wealth distribution at retirement skill differences assortative mating social security and the time preference are the primary determinants of wealth inequality bequests do propagate wealth inequality but only in the presence of social security which disproportionately disinherits the lifetime poor intergenerational wealth immobility also considered here is primarily determined by the inheritance of skills from one s parents and the magnification of the impact of this inheritance by marital sorting

retirement wealth and lifetime earnings this article argues that a satisfactory theory of wealth inequality should account not only for the marginal distribution of wealth but also for the joint distribution of wealth and earnings the article describes the joint distribution of retirement wealth and lifetime earnings in the panel study of income dynamics it then evaluates the ability of a stochastic life cycle model to account for key features of this distribution the life cycle model fails to account for three key features of the data 1 the correlation between lifetime earnings and retirement wealth is too high 2 the wealth gaps between earnings rich and earnings poor households are too large 3 wealth inequality among households with similar lifetime earnings is too small models in which households differ in rates of return or time preferences account much better for the joint distribution of retirement wealth and lifetime earnings

dynamic status effects savings and income inequality this paper advances the hypothesis that the intensity of status preferences depends negatively on the average wealth of society endogenous dynamic status effect in accordance with empirical evidence our theory replicates the contradictory historical facts of an increasing saving rate along with declining returns to capital over time by affecting the dynamics of the saving rate the dynamic status effect raises inequality thereby providing a behavioural mechanism for the observed diverse dynamics of income inequality across countries in countries in which the dynamic status effect is strong weak inequality rises declines over time in response to a positive productivity shock

older or wealthier the impact of age adjustment on wealth inequality differences in individual wealth holdings are widely viewed as a driving force of economic inequality however as this finding relies on cross sectional data a concern is that older is confused with wealthier we propose a new method to adjust for age effects in cross sections which eliminates wealth inequality due to age yet preserves inequality arising from other factors using a new cross country comparable database we examine the impact of age adjustments on wealth inequality across countries and over time we find that the most widely used method yields a substantially different picture of age adjusted wealth inequality than our method 2011 the editors of the scandinavian journal of economics

what accounts for the variation in retirement wealth among u s households even among households with similar socioeconomic characteristics saving and wealth vary considerably life cycle models attribute this variation to differences in time preference rates risk tolerance exposure to uncertainty relative tastes for work and leisure at advanced ages and income replacement rates these factors have testable implications concerning the relation between accumulated wealth and the shape of the consumption profile using the panel study of income dynamics and the consumer expenditure survey we find little support for these implications the data are instead consistent with rule of thumb mental accounting or hyperbolic discounting theories of wealth accumulation jel di d91 e21

families as shocks in this paper we show the quantitative importance of the process that determines changes in family composition to determine the main macroeconomic magnitudes we do so by modelling family type as a stochastic process that affects households in a way similar to shocks to earnings agents respond to these process by optimally choosing savings we show that the size of savings differs dramatically depending on the details of the stochastic process the model is quantitative its fundamental parameters are estimated using u s data

discount rate heterogeneity and social security reform abstract as many countries consider the privatization of existing pay as you go social security systems the option to make participation in the new system voluntary may appeal to policy makers who need to obtain the political support of their workers a critical issue in evaluating such a reform and its economic consequences is the unobserved heterogeneity in households preferences for consumption this paper estimates the distribution of rates of time preference from the wealth data in the survey of consumer finances 1992 and a flexible life cycle model of consumption under income uncertainty the estimated distribution is then applied to a variety of reform proposals that incorporate a voluntary choice of how much to contribute to a dedicated retirement account and a rebate of the existing payroll tax that increases with the magnitude of the contribution the main finding is that an appropriate menu of reform plans can induce the voluntary buy out of 84 of existing payroll taxes at an immediate cost to national saving of less than 0 25 percentage point

how important is discount rate heterogeneity for wealth inequality abstract this paper investigates the role of discount rate heterogeneity for wealth inequality the key idea is to infer the distribution of preference parameters from the observed age profile of wealth inequality the contribution of preference heterogeneity to wealth inequality can then be measured using a quantitative life cycle model i find that discount rate heterogeneity increases the gini coefficient of wealth by around 0 07 to levels that are close to the data the share of wealth held by the richest 1 of households rises by around 0 04 but falls short of the data by more than 10 percentage points discount rate heterogeneity also helps to account for the large wealth inequality observed among households with similar lifetime earnings

intergenerational transfers and the accumulation of wealth h t ouseholds acquire wealth from two sources they save out of income they have earned and they receive transfers from other people the first method of wealth accumulation goes under the name of life cycle saving in which people save during their working lives and dissave after retirement the second involves either an inter vivos transfer that is a transfer between living people or a bequest a transfer that occurs at the death of the donor while inter vivos transfers and bequests will arise in dynastic models where preferences include a taste for the well being of one s descendents few empirical life cycle models reflect these concerns indeed a sharp debate has arisen over the ability of the simple life cycle model to explain observed wealth accumulation understanding the relative sizes of these sources of wealth accumulation affects a variety of issues for example the effects of government debt social insurance public transfer programs estate taxes and incentives for charitable giving depend to some extent on the magnitude and nature of private saving and transfers of wealth analyses of the inequality of wealth may depend on whether most of wealth is earned or received as transfers appropriate policies for encouraging private saving may look rather different depending on whether most saving is to be consumed later in life or passed along to the next generation finally evidence on transfer patterns relates to more fundamental