Essays on Structural Modeling of Life Cycle Behavior

In the economic literature there are divergences on a number ofissues between the results obtained with macro- and micro-basedmodels. Habit formation in consumption is one example of suchdisagreement. Another example is the discrepancy between thetheoretical prediction that all investors should participate instock markets if the equity premium is positive, and empiricalevidence that a substantial fraction of individual consumers donot invest in stock markets. A primary goal of my thesis is to trynarrowing the gap between the results in these two literatures,looking at the problem from the prospective of households. Chapter1 develops a nonlinear GMM estimator to investigate the presenceof habit formation in household consumption. The estimationresults support the existence of habit formation in foodconsumption. Next, I exploit the property of habit formationpreferences to generates the time- and individual-varying RelativeRisk Aversion and Intertemporal Elasticity of Substitution toanalyze the degree of heterogeneity in these coefficients. I findthat these parameters display significant variation acrossindividuals and over time. In Chapter 2 I develop a dynamicstructural model of stock market participation and portfoliochoice to investigate whether financial education programs canaffect consumers' choices and increase participation in financialmarkets. I estimate the model, where the consumers' decisionsregarding stock market participation are influenced byparticipation costs. The results provide evidence that theparticipation cost is substantial. The model estimates are thenused to conduct simulation exercises to evaluate the effect offinancial education programs.