The present paper thoroughly explores second-best efficient allocations in an adverse selection insurance economy. We start from a natural extension of the classical model, assuming less than perfect risk perceptions. We propose first and second welfare theorems, by means of which we describe efficiencyenhancing policies. Notions of weak and strong adverse selection are promising for interpreti...

We review the recent literature on rational inattention, identify main theoretical mechanisms, and explain how it helps us understand a variety of phenomena across fields economics. The theory inattention assumes that agents cannot process all available information, but they can choose which exact pieces information to attend to. Several important results in economics have been built around imp...

This survey discusses behavioral and experimental macroeconomics, emphasizing a complex systems perspective. The economy consists of boundedly rational heterogeneous agents who do not fully understand their environment use simple decision heuristics. Central to our is the question under which conditions macro-system interacting may or coordinate on equilibrium outcome. A general finding that po...

I consider the implications of alternative bankruptcy regimes for student loans in a heterogeneous model of life-cycle earnings and risky human capital accumulation. Findings suggest that the ability level of high-school graduates drives the decision to enroll in college, while the initial human capital level is crucial for completing college. Also, the correlation between parental wealth and a...

This paper proves that, in a general financial model with incomplete markets, the multiplicity of certainty equilibria is not necessary for the existence of sunspot effects. These effects are present, by definition, when real economic variables differ across realizations of extrinsic uncertainty. In a financial model of incomplete markets with identical payouts across realizations of extrinsic ...

The theory of intertemporal consumption choice makes sharp predictions about the evolution of the entire distribution of household consumption, not just about its conditional mean. In the paper, we study the empirical transition matrix of consumption using a panel drawn from the Bank of Italy Survey of Household Income and Wealth. We estimate the parameters that minimize the distance between th...

We examine the consumption and portfolio decisions of an agent with Friedman-Savage type period utility in continuous time.We find the FriedmanSavage consumer does not gamble, but will aggressively invest in risky activities for wealth levels that support a minimum subsistence level of consumption. As the market premium of risk approaches zero, the agent becomes infinitely aggressive for these ...