Investment-based asset pricing research highlights the role of irreversibility as a determinant of firms’ risk and expected return. In a neoclassical model of a firm with costly scale adjustment options, we show that the effect of scale flexibility (i.e., contraction and expansion options) is to determine the relation between risk and operating leverage: risk increases with operating leverage f...

Though most of the literature in health insurance and the labor market assumes a tradeoff between employerprovided health insurance and wages, its empirical validity has not been established. Employing Current Population Survey 2004 data, this paper assesses the tradeoff hypothesis in a distributional analysis framework using stochastic dominance tests. In addition, it contributes to the previo...

Introducing a concept of real, as opposed to nominal, inequality of income or wealth suggests some historical reinterpretations, buttressed by a closer look at consumption by the rich. The purchasing powers of different income classes depend on how relative prices move. The influence of relative prices on real inequality was greater in the sixteenth through nineteenth centuries than in the twen...

We study a problem of repeated moral hazard where the e¤ect of e¤ort is persistent over time: each period’s outcome distribution is a function of a distributed lag of past e¤orts. We show that when the utility of the agent is linear in e¤ort, a simple rearrangement of terms in his lifetime utility translates this problem into a standard repeated moral hazard. As a consequence, the optimal consu...

This paper analyzes the effects of moral hazard on long-run consumption or utility. Given exponential utility, it is shown that the utility of those with unobservable endowments becomes arbitrarily negative as long as any positive fraction of otherwise identical agents have observable endowments. Next, it is shown that assuming a finite number of agents results in essentially the same outcomes ...

This paper examines the sensitivity of inequality and poverty measures to the adult equivalence scale and the unit of analysis. Comparisons are made using parametric equivalence scales, and income units include individuals, equivalent adults and households. The role of the correlation between equivalent income and household size, and the weight attached to children, is examined analytically. Em...

We study Markov-perfect Nash equilibria (MPNE) of a Ramsey-Cass-Koopmans economy in which households are aware of their influence on prices. The Ramsey conjecture fails to hold such that households other than the most patient one own positive wealth in the steady state. This confirms results that have been derived in the same model using an openloop equilibrium concept. In contrast to the compe...

The paper provides estimates of the effect of economic inequality on middle class well being in Switzerland. Economic well being is proxied by a person’s satisfaction with his/her income. Two inequality indicators are used, one standard (the Gini coefficient of the pre-tax income distribution) and one novel (the number of luxury car registrations per 1000 population). Identification is through ...

The variance in the logarithms of per capita GDP in purchasing-power-parity prices increased in the world from 1960 to 1968 and decreased since the mid 1970s. In the later period the convergence in intercountry incomes more than offset any increase in within country inequality. Approximately two-thirds of this measure of world inequality is intercountry, three-tenths interhousehold within count...

We solve the nonlinear income tax program for rank-dependent social welfare functions, expressing trade-off between size and inequality using Gini related families of positional indices. Absent bunching, ranks in actual optimal allocations are invariant. Exploiting this feature, we provide new, simple, intuitive formulas both quasilinear additive cases new comparative static results. Our approa...