How far is the US social insurance system from an efficient system? We answer this question within a model where agents receive idiosyncratic, labor-productivity shocks that are privately observed. When social security and income taxation comprise the social insurance system, the maximum...

In this paper we study the quantitative properties of alternative social security regimes in a large overlapping generations model where households face uninsurable idiosyncratic income shocks. We study this issue in two model economies. The first is the standard one characterized by exogenous...

International capital flows have increased dramatically since the 1980s, with much of the increase being due to trade in equity and debt markets. Such developments are often attributed to the increased integration of world financial markets. We present a model that allows us to examine how...

The neoclassical growth model is augmented to study the macroeconomic effects of uninsured idiosyncratic investment risk. As compared to complete markets, the steady state is characterized by both a lower interest rate and a lower capital stock when the elasticity of intertemporal substitution...

Empirical evidence indicates local jurisdictions are internally more heterogenous than standard sorting models predict. We develop a dynamic multi-region model, with fluctuating regional house prices, where an owner-occupying household's location choice depends on its current wealth and its...

When financial markets are incomplete, shareholders will in general disagree on the optimal level of investment to be undertaken by the firm (Grossman and Hart, 1979). Macroeconomic models with heterogeneous agents and incomplete markets (e.g. Krusell and Smith, 1998) usually ignore this issue...

We quantify the effect of financial leverage on stock return volatility in a dynamic general equilibrium economy with debt and equity claims. We study the effects of financial leverage on the market portfolio, and on a small firm with idiosyncratic and market risk. In an economy with both a...