This paper augments the neoclassical growth model to study the macroeconomic effects of uninsured idiosyncratic investment, or capital-income, risk. Under standard assumptions for preferences and technologies, individual policy rules are linear in individual wealth, ensuring that the equilibrium...

Even though smokers incur higher health expenditures than nonsmokers of the same age, smokers have significantly higher mortality rates, so the expected lifetime health expenditure for a smoker is actually lower than for a nonsmoker. Because of this fact, some politicians and policy-makers have...

Two key components of the recent U.S. health reform are a new regulation of the individual health insurance market and an increase in income redistribution in the economy. Which component contributes more to the welfare outcome of the reform? We address this question by constructing a general...

This paper examines aggregate savings in a general equilibrium model where infinitely lived households face volatile (and possibly uncertain) income paths, hold a risk-free asset, and face a borrowing constraint. I first show that the equilibrium capital stock in an economy without uncertainty,...

I study the asset pricing implications and the efficiency of a tractable dynamic stochastic general equilibrium model with heterogeneous agents and incomplete markets along the lines of Krebs [Krebs, T., 2003. Human Capital Risk and Economic Growth. Quarterly Journal of Economics 118(2),...

We study an investor's optimal consumption and portfolio choice problem when he is confronted with two possibly misspecified submodels of stock returns: one with IID returns and the other with predictability. We adopt a generalized recursive ambiguity model to accommodate the investor's aversion...

This study introduces a retirement decision into the class Merton model. A familiar result is that you should retire if and when the marginal utility of another year's wages is equal to the disutility of work.A new result is that at the point of retirement your exposure to risky assets should...

Motivated by the success of internal habit formation preferences in explaining asset pricing puzzles, we introduce these preferences in a life-cycle model of consumption and portfolio choice with liquidity constraints, undiversifiable labor income risk and stock-market participation costs. In...

In this paper I present an explanation to the fact that in the data wealth is substantially more concentrated than income. Starting from the observation that the composition of households' portfolios changes towards a larger share of high-yield assets as the level of net worth increases, I first...

We analytically show that a common across rich/poor individuals Stone-Geary utility function with subsistence consumption in the context of a simple two-asset portfolio-choice model is capable of qualitatively and quantitatively explaining: (i) the higher saving rates of the rich, (ii) the...