Precautionary saving in a Markovian earnings environment

Light, Bar

doi:10.1016/j.red.2017.12.004

Cited by 15 publications

(5 citation statements)

References 38 publications

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“…observed, then t = aE (y t ) k where a and k are positive constants and k goes to zero as b 1 goes to zero: A disadvantage of quadratic utility however is that for large wealth and therefore consumption above the "bliss point," marginal utility can become negative, creating complications. For an excellent recent treatment of the Markovian income process see Light (2016).…”

Section: Overlapping Generations (Olg)mentioning

confidence: 99%

Skewed Wealth Distributions: Theory and Empirics

Benhabib

Bisin

2018

Journal of Economic Literature

196

108

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Invariably, across a cross-section of countries and time periods, wealth distributions are skewed to the right displaying thick upper tails, that is, large and slowly declining top wealth shares. In this survey, we categorize the theoretical studies on the distribution of wealth in terms of the underlying economic mechanisms generating skewness and thick tails. Further, we show how these mechanisms can be micro-founded by the consumption–savings decisions of rational agents in specific economic and demographic environments. Finally we map the large empirical work on the wealth distribution to its theoretical underpinnings. (JEL C46, D14, D31, E21, J31)

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Section: Overlapping Generations (Olg)mentioning

confidence: 99%

Skewed Wealth Distributions: Theory and Empirics

Benhabib

Bisin

2018

Journal of Economic Literature

196

108

View full text Add to dashboard Cite

show abstract

Section: Overlapping Generations (Olg)mentioning

confidence: 99%

Skewed Wealth Distributions: Theory and Empirics

Benhabib¹,

Bisin²

2016

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Invariably across a cross-section of countries and time periods, wealth distributions are skewed to the right displaying thick upper tails, that is, large and slowly declining top wealth shares. In this survey we categorize the theoretical studies on the distribution of wealth in terms of the underlying economic mechanisms generating skewness and thick tails. Further, we show how these mechanisms can be micro-founded by the consumption-saving decisions of rational agents in specific economic and demographic environments. Finally we map the large empirical work on the wealth distribution to its theoretical underpinnings.

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“…It is easy to see that p is convexitypreserving and monotone. Furthermore, when u ′ is convex then the policy function g(s, p) is increasing in p with respect to the convex order, i.e., g(s, p 2 ) ≥ g(s, p 1 ) whenever p 2 CX p 1 (see Light (2018a)). Thus, part (ii) of Proposition 4 implies that when the labor income uncertainty increases (i.e., p 2 CX p 1 ), both the highest partial equilibrium (when R is fixed) wealth inequality and the lowest partial equilibrium wealth inequality increase (i.e., λ 2 ICX λ 1 ).…”

Section: Comparisons Of Stationary Distributionsmentioning

confidence: 99%

Stochastic Comparative Statics in Markov Decision Processes

Light¹

2019

Preprint

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In multi-period stochastic optimization problems, the future optimal decision is a random variable whose distribution depends on the parameters of the optimization problem. We analyze how the expected value of this random variable changes as a function of the dynamic optimization parameters in the context of Markov decision processes. We call this analysis stochastic comparative statics. We derive both comparative statics results and stochastic comparative statics results showing how the current and future optimal decisions change in response to changes in the single-period payoff function, the discount factor, the initial state of the system, and the transition probability function. We apply our results to various models from the economics and operations research literature, including investment theory, dynamic pricing models, controlled random walks, and comparisons of stationary distributions.

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Precautionary saving in a Markovian earnings environment

Cited by 15 publications

References 38 publications

Skewed Wealth Distributions: Theory and Empirics

Skewed Wealth Distributions: Theory and Empirics

Skewed Wealth Distributions: Theory and Empirics

Stochastic Comparative Statics in Markov Decision Processes

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