Previous work by has shown that lumpy investment models well characterize individual expenditures on durables, in particular automobiles. In that class of models, a higher level of uncertainty generally implies that the household should tolerate a larger imbalance between the actual stock of the durable and the target stock before closing it by buying and/or selling. Then, if the level of uncer...

The aim of this paper is to understand the determinants of private saving in Colombia and to evaluate the main hypothesis of the sharp decline in the private saving rate observed in the 1990s.There are three main results. First, the fall of the private saving rate had little impact on the level and composition of aggregate demand. Second, total private saving is not determined by corporate beha...

We develop and test a simple model of limited attention in intertemporal choice. The model posits that individuals fully attend to consumption in all periods but fail to attend to some future lumpy expenditure opportunities. This asymmetry generates some predictions that overlap with models of present-bias. Our model also generates the unique predictions that reminders may increase saving, and ...

We consider an exchange economy under uncertainty, in which agents’ utility functions exhibit constant absolute risk aversion, but they may be recursive and the expected utility calculation may be based on multiple subjective beliefs. The risk aversion coefficients, subjective beliefs, subjective time discount factors, initial endowments, and tradeable assets may differ across agents. We prove ...

We investigate the susceptibility of democracies to demagogues, studying tensions between representatives who guard voters’ long-run interests and demagogues cater short-run desires. Parties propose consumption investment. Voters base choices on current-period valence shocks. Younger/poorer economies economically disadvantaged voters are attracted demagogue’s disinvestment policies, forcing far...

This paper determines optimal public debt in a life cycle model with incomplete markets that matches the empirically observed variation consumption, labor, and savings. We find savings—not debt—equal to 168 percent of output is optimal, primarily due influence on household decision-making. By inducing lower interest rate, savings slow consumption leisure growth over an average household’s lifet...

We compare wealth holdings across two cohorts of the Health and Retirement Study: the early Baby Boomers in 2004, and individuals in the same age group in 1992. Levels and patterns of total net worth have changed relatively little over time, though Boomers rely more on housing equity than their predecessors. Most important, planners in both cohorts arrive close to retirement with much higher we...

We study asset-pricing implications of innovation in a general-equilibrium overlappinggenerations economy. Innovation increases the competitive pressure on existing firms and workers, reducing the profits of existing firms and eroding the human capital of older workers. Due to the lack of inter-generational risk sharing, innovation creates a systematic risk factor, which we call “displacement r...

Debt-induced crises, including the subprime, are usually attributed exclusively to supply-side factors. We examine the role of social influences on debt culture, emanating from perceived average income of peers. Utilizing unique information from a household survey representative of the Dutch population, that circumvents the issue of defining the social circle, we consider collateralized, consum...

Weuse aggregation theory to investigate the link between one-consumer andmulti-consumer economies under a quasi-linear class of preferences. Our study is carried out in the context of the neoclassical growthmodel. The quasi-linear preferences considered are additive in consumption and leisure and linear in leisure. We first show that in a homogeneous agents economy, the individual hours worked ...