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...

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 consider a Lucas asset-pricing model with heterogeneous agents, exogenous labor income, and a finite number of exogenous shocks. Although agents are infinitely lived, endowments and dividends are time-invariant functions of the exogenous shock alone and are thus restricted to lie in a...

There are a wide variety of theoretical general equilibrium models with incomplete security markets. In this paper we give a general recipe for using homotopy algorithm to compute equilibria in these models. In many models, taxes, transaction-costs or other market frictions introduce the...

We consider an infinite horizon exchange economy with incomplete markets and default. As in Geanakoplos and Zame (1998) financial securities are traded if the promises associated with them are backed by collateral. The only collateral available in our economy are shares of Lucas trees. We prove...

In general equilibrium models of financial markets, the capital asset pricing formula does not hold when agents have von Neumann–Morgenstern utility with constant relative risk aversion. In this paper we examine under which conditions on endowments and dividends the pricing formula provides a...

Although equilibrium allocations in models with incomplete markets are generally not Pareto-efficient, it is often argued that quantitative welfare losses from missing assets are small when time horizons are long and shocks are transitory. In this paper, we use a computational analysis to show...

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...