Idiosyncratic household income is typically assumed to consist of several components. While the total income is observed and is often modelled as an integrated moving average process, individual components are not observed directly. In the literature, econometricians typically assume that...

This paper studies the optimal trade-off between commitment and flexibility in an intertemporal consumption/savings choice model. Individuals expect to receive relevant information regarding their own situation and tastes - generating a value for flexibility - but also expect to suffer from...

In this paper, we study a household’s optimal life-cycle housing choices by calibrating a model with uninsurable labor income and house price risks. In our setup, the household not only decides between renting and owning a house, but also chooses the size of its house. Borrowing is...

We develop a life-cycle model that captures "absent-mindedness": the fact that many households have only the sketchiest understanding of their pattern of spending. The model generates precautionary spending, whereby absent-minded agents tend to consume more than attentive ones. The model also...

In the absence of correlation between net wealth and entrepreneurial talent or risk aversion, net wealth should have an explanatory power in the decision of becoming entrepreneurs only for households that are financially constrained. Further, the importance of net wealth should be higher for the...

We present a heterogeneous-agent model with incomplete markets, in which household debt need to be collateralized by durable holdings and the lowest attainable labor income. Labor income is risky and households decide how much non-durables to consume, on their position of secured debt and the...

This paper studies dynamic non-linear taxation in a two-period model without government commitment and a continuum of agents with privately known skill parameters, which are constant overtime. The government is utilitarian but cannot commit at t=1 to the tax scheme that she will propose at t=2....

This paper characterizes the dynamics of Pareto efficient income taxes in a dynamic economy with human capital accumulation. I extend the tools and insights developed by Mirrlees (1971) into a dynamic framework. I follow Diamond (1998) by assuming that there are no income effects on labor...