This paper explores the dynamics of income inequality by studying the evolution of human capital investment and neighborhood choice for a population of families. Parents affect the conditional probability distribution of their children's income through the choice of a neighborhood in which to...

A version of the permanent income model is developed in which the bliss point of the agent is stochastic. The bliss point depends on realizations of the stochastic process generating labor income and a random shock. The model predicts consumption and labor income share a common trend and that a...