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Creator: Hosseini, Roozbeh, Jones, Larry E., and Shourideh, Ali Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 674 Abstract:
We use an extended Barro-Becker model of endogenous fertility, in which parents are heterogeneous in their labor productivity, to study the efficient degree of consumption inequality in the long run. In our environment a utilitarian planner allows for consumption inequality even when labor productivity is public information. We show that adding private information does not alter this result. We also show that the informationally constrained optimal insurance contract has a resetting property—whenever a family line experiences the highest shock, the continuation utility of each child is reset to a (high) level that is independent of history. This implies that there is a non-trivial, stationary distribution over continuation utilities and there is no mass at misery. The novelty of our approach is that the no-immiseration result is achieved without requiring that the objectives of the planner and the private agents disagree. Because there is no discrepancy between planner and private agents' objectives, the policy implications for implementation of the efficient allocation differ from previous results in the literature. Two examples of these are: 1) estate taxes are positive and 2) there are positive taxes on family size.
Tema: D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement, H23 - Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies, D30 - Distribution: General, H43 - Project Evaluation; Social Discount Rate, C61 - Optimization Techniques; Programming Models; Dynamic Analysis, H21 - Taxation and Subsidies: Efficiency; Optimal Taxation, and D64 - Altruism; Philanthropy; Intergenerational Transfer
Creator: Krueger, Dirk and Perri, Fabrizio Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 363 Abstract:
Using data from the Consumer Expenditure Survey, we first document that the recent increase in income inequality in the United States has not been accompanied by a corresponding rise in consumption inequality. Much of this divergence is due to different trends in within-group inequality, which has increased significantly for income but little for consumption. We then develop a simple framework that allows us to analytically characterize how within-group income inequality affects consumption inequality in a world in which agents can trade a full set of contingent consumption claims, subject to endogenous constraints emanating from the limited enforcement of intertemporal contracts (as in Kehoe and Levine, 1993). Finally, we quantitatively evaluate, in the context of a calibrated general equilibrium production economy, whether this setup, or alternatively a standard incomplete markets model (as in Aiyagari, 1994), can account for the documented stylized consumption inequality facts from the U.S. data.
Palabra clave: Limited Enforcement, Risk Sharing, and Consumption Inequality Tema: D31 - Personal Income, Wealth, and Their Distributions, E21 - Macroeconomics: Consumption; Saving; Wealth, D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement, D91 - Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making, and G22 - Insurance; Insurance Companies; Actuarial Studies
Creator: Calsamiglia, Caterina and Guell, Maia Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 712 Abstract:
The Boston mechanism is a school allocation procedure that is widely used around the world. To resolve overdemands, priority is often given to families who live in the neighborhood school. We note that such priorities define some schools as being safer. We exploit an unexpected change in the definition of neighborhood in Barcelona to show that when allowing school choice under the BM with priorities: (1) the resulting allocation is not very different from a neighborhood-based assignment, and (2) important inequalities emerge beyond parents’ naivete found in the literature.
Palabra clave: School choice, Boston mechanism, and Priorities Tema: D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement, I24 - Education and Inequality, and C78 - Bargaining Theory; Matching Theory
Creator: Kocherlakota, Narayana Rao, 1963- and Pistaferri, Luigi Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 372 Abstract:
Typical incomplete markets models in international economics make two assumptions. First, households are not able to fully insure themselves against country-specific shocks. Second, there is a representative household within each country, so that households are fully insured against idiosyncratic shocks. We assume instead that cross-household risk-sharing is limited within countries, but cross-country risk-sharing is complete. We consider two types of limited risk-sharing: domestically incomplete markets (DI) and private information-Pareto optimal (PIPO) risk-sharing. We show that the models imply distinct restrictions between the cross-sectional distributions of consumption and real exchange rates. We evaluate these restrictions using household-level consumption data from the United States and the United Kingdom. We show that the PIPO restriction fits the data well when households have a coefficient of relative risk aversion of around 5. The analogous restrictions implied by the representative agent model and the DI model are rejected at conventional levels of significance.
Palabra clave: Precautionary savings, Real exchange rate, Market incompleteness, and Pareto optimality Tema: E21 - Macroeconomics: Consumption; Saving; Wealth, F31 - Foreign Exchange, and D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement