This paper presents an incentive-based theory of the dynamics of the distribution of consumption in the presence of aggregate shocks. The paper builds on the models concerning the distribution of income or consumption and incentive problems of E. Green (1987), J. Thomas and T. Worrall (1991), C....

This paper considers an optimal taxation environment where household income is private information, and the government randomly audits and punishes households found to be underreporting. We prove that the optimal mechanism derived using standard mechanism design techniques has a bad equilibrium...

This paper considers an optimal taxation environment where household income is private information, and the government randomly audits and punishes households found to be underreporting. We prove that the optimal mechanism derived using standard mechanism design techniques has a bad equilibrium...

This paper argues that both unequal opportunity and social mobility are necessary implications of an efficient societal arrangement when incentives must be provided. Copyright 2006, Wiley-Blackwell.

This paper develops new recursive, set based methods for studying repeated games with private monitoring. For any finite-state strategy profile, we find necessary and sufficient conditions for whether there exists a distribution over initial states such that the strategy, together with this...

This paper presents a detailed theoretical derivation and justification for methods used to compute solutions to a multiperiod (including infinite-period), continuum-agent, unobserved-effort economy. Actual solutions are displayed illustrating cross-sectional variability in consumption and labor...

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...