This paper studies an overlapping generations model with stochastic production and incomplete markets to assess whether the introduction of an unfunded social security system leads to a Pareto improvement. When returns to capital and wages are imperfectly correlated, a system that endows retired...

We provide conditions under which contingent claim and asset demands are consistent with state independent Expected Utility maximization. The paper focuses on the case of a single commodity and demands are allowed to be functions of probabilities and not just prices and income. We extend prior...

We compare asset prices in an overlapping generations model for incomplete and complete markets. Individuals within a generational cohort have heterogeneous beliefs about future states of the economy and thus would like to make bets against each other. In the incomplete-markets economy, agents...

The standard assumption that asset demand increases in income and decreases in price has its origin in Arrow's classic model with one risky and one risk free asset, where both are held long, and preferences exhibit decreasing absolute and increasing relative risk aversion. However if one allows...

We quantitatively characterize the optimal capital and labor income tax in an overlapping generations model with idiosyncratic, uninsurable income shocks and permanent productivity differences of households. The optimal capital income tax rate is significantly positive at 36 percent. The optimal...

We quantitatively characterize the optimal mix of progressive income taxes and education subsidies in a model with endogenous human capital formation, borrowing constraints, income risk and incomplete financial markets. In addition to the distortions of labor supply, progressive taxes weaken the...