Creator: Lepetyuk, Vadym and Stoltenberg, Christian Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 705 Abstract:
The rise in within-group consumption inequality in response to the increase in within-group income inequality over the last three decades in the U.S. is puzzling to expected-utility-based incomplete market models. The two-sided lack of commitment models exhibit too little consumption inequality while the standard incomplete markets models tend to predict too much consumption inequality. We show that a model with two-sided lack of commitment and chance attitudes, as emphasized by prospect theory, can explain the relationship and can avoid the systematic bias of the expected utility models. The chance attitudes, such as optimism and pessimism, imply that the households attribute a higher weight to high and low outcomes compared to their objective probabilities. For realistic values of risk aversion and of chance attitudes, the incentives for households to share the idiosyncratic risk decrease. The latter effect endogenously amplifies the increase in consumption inequality relative to the expected utility model, thereby improving the fit to the data.
关键词: Risk sharing, Consumption inequality, Prospect theory, and Limited enforcement 学科: D52 - Incomplete Markets, D31 - Personal Income, Wealth, and Their Distributions, and E21 - Macroeconomics: Consumption; Saving; Wealth
Creator: Kehoe, Timothy Jerome, 1953- and Levine, David K. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 380 Abstract:
Typical models of bankruptcy and collateral rely on incomplete asset markets. In fact, bankruptcy and collateral add contingencies to asset markets. In some models, these contingencies can be used by consumers to achieve the same equilibrium allocations as in models with complete markets. In particular, the equilibrium allocation in the debt constrained model of Kehoe and Levine (2001) can be implemented in a model with bankruptcy and collateral. The equilibrium allocation is constrained efficient. Bankruptcy occurs when consumers receive low income shocks. The implementation of the debt constrained allocation in a model with bankruptcy and collateral is fragile in the sense of Leijonhufvud’s “corridor of stability,” however: If the environment changes, the equilibrium allocation is no longer constrained efficient.
学科: D61 - Allocative Efficiency; Cost-Benefit Analysis, D50 - General Equilibrium and Disequilibrium: General, G13 - Contingent Pricing; Futures Pricing; option pricing, and D52 - Incomplete Markets
Creator: Cole, Harold Linh, 1957-, Mailath, George Joseph, and Postlewaite, A. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 253 Abstract:
This paper addresses the question of whether agents will invest efficiently in attributes that will increase their productivity in subsequent matches with other individuals. We present a two-sided matching model in which buyers and sellers make investment decisions prior to a matching stage. Once matched, the buyer and seller bargain over the transfer price. In contrast to most matching models, preferences over possible matches are affected by decisions made before the matching process. We show that if bargaining respects the existence of outside options (in the sense that the resulting allocation is in the core of the assignment game), then efficient decisions can always be sustained in equilibrium. However, there may also be inefficient equilibria. Our analysis identifies a potential source of inefficiency not present in most matching models.
关键词: Hold-up problems, Matching models, Investment, and Contracting 学科: C70 - Game Theory and Bargaining Theory: General, D52 - Incomplete Markets, and D20 - Production and Organizations: General
Creator: Arellano, Cristina, Bai, Yan, and Kehoe, Patrick J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 466 Abstract:
The U.S. Great Recession featured a large decline in output and labor, tighter financial conditions, and a large increase in firm growth dispersion. We build a model in which increased volatility at the firm level generates a downturn and worsened credit conditions. The key idea is that hiring inputs is risky because financial frictions limit firms' ability to insure against shocks. An increase in volatility induces firms to reduce their inputs to reduce such risk. Out model can generate most of the decline in output and labor in the Great Recession and the observed increase in firms' interest rate spreads.
关键词: Credit constraints, Credit crunch, Firm heterogeneity, Firm credit spreads, Labor wedge, Great Recession, and Uncertainty shocks 学科: E23 - Macroeconomics: Production, E44 - Financial Markets and the Macroeconomy, E32 - Business Fluctuations; Cycles, D53 - General Equilibrium and Disequilibrium: Financial Markets, D52 - Incomplete Markets, and E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity