The future purchasing power of wage income may become risky in the presence of capital market imperfections. Current nominal wages, therefore, have intertemporal implications which in turn affect wage determination. The influence of consumption risk on wage setting is analyzed in a general...

The welfare state is not merely a stand-in for missing markets; it can do a whole lot more. When generations overlap and the young must borrow to make educational investments, a dynamically-efficient welfare state, by taxing the middle-aged and offering a compensatory old-age pension, can...