This paper develops an incomplete markets model with state dependent (Markovian) stochastic earnings processes and ex ante skill heterogeneity corresponding to being university educated or not. Using the Wealth and Assets Survey for Great Britain, we find that the university educated group has...

Rent seeking leads to a misallocation of resources that worsens economic outcomes and reduces aggregate welfare. We conduct a quantitative examination of the distributional effects of rent extraction via the financial sector. Rent seeking introduces a possibility for insurance against...

We develop a theoretical framework where the cross-sectional distributions of hours, earnings, wealth and consumption are determined jointly with a set of expenditure targets defining peer and aspirational pressure for members of different social classes. We show existence of a stationary...

Incomplete markets models imply heterogeneous household savings behaviour which in turn generates pecuniary externalities via the interest rate. Conditional on differences in the processes determining household earnings for distinct groups in the population, these savings externalities may...