The effects on asset prices of changes in risk are studied in a general equilibrium model in which the conditional risk evolves stochastically over time. The savings decisions of consumers take account of the fact that conditional risk is a serially correlated random variable. By restricting the...

This paper presents an overview of current models of consumption and investment behavior. First, the stochastic implications of the permanent income model and empirical tests of these implications are discussed. Then the simple theoretical model is extended to include expenditure on consumer...

Various tax policies provide consumers with forms of insurance. Social security has the payoff characteristics of an annuity. The income tax provides consumers with a degree of Income insurance because the government shares part of the individual's income risk. Redistributive taxes can be used...

The Ricardian Equivalence Theorem, which is the proposition that changes in the timing of lump-sum taxes have no effect on assumption or capital accumulation, depends on the exist- of operative altruistic motives for intergenerational transfers. These transfers can be bequests from parents to...

This paper presents a general equilibrium model with logarithmic preferences and technology. If the non-negativity constraint on bequests is strictly binding, then the bequest motive is characterized as inoperative. After determining the conditions for operative and inoperative bequest motives,...

The crowding-out coefficient is the ratio of the reduction in privately-issued bonds to the increase in government bonds that are issued to finance a tax cut. If (1) Ricardian equivalence holds, and (2) households do not simultaneously borrow risklessly and have positive gross positions in other...

In this paper I analyze the relationships among investment, q, and cash flow in a tractable stochastic model in which marginal q and average q are identically equal. After analyzing the impact of changes in the distribution of the marginal operating profit of capital, I extend the model to...

I develop a dynamic model of leverage with tax deductible interest and an endogenous cost of default. The interest rate includes a premium to compensate lenders for expected losses in default. A borrowing constraint is generated by lenders' unwillingness to lend an amount that would trigger...

The issue of dynamic efficiency is central to analyses of capital accumulation and economic growth. Yet the question of what operating characteristics of an economy subject to productivity shocks should be examined to determine whether or not it is efficient has not been resolved. This paper...

This paper attempts to give a structural interpretation to the distributed lag of sales on investment at the two-digit level in US manufacturing. It first presents a simple model which captures the various sources of lags and their respective implications. It then estimates the model, using both...