We consider an environment in which agents' skills are private information and follow arbitrary stochastic processes. We prove that it is typically Pareto optimal for an individual's marginal benefit of investing in capital to exceed his marginal cost of doing so. This wedge is consistent with a...

We consider an environment in which agents' skills are private information and follow arbitrary stochastic processes. We prove that it is typically Pareto optimal for an individual's marginal benefit of investing in capital to exceed his marginal cost of doing so. This wedge is consistent with a...

We use variation in the degree of development of local credit markets and matched employer--employee data to assess the role of the firm as an internal credit market. We find that firms operating in less financially developed markets offer lower entry wages but faster wage growth than firms in...

We characterize infrequent durables stock adjustment by consumers who also derive utility from non-durable consumption flows in the presence of idiosyncratic income uncertainty. The data we analyse include subjective future income uncertainty measures, which we use as instruments in the...