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An impossibility theorem for wealth in heterogeneous-agent models with limited heterogeneity

Stachurski, John; Toda, Alexis Akira

Description

It has been conjectured that canonical Bewley–Huggett–Aiyagari heterogeneous-agent models cannot explain the joint distribution of income and wealth. The results stated below verify this conjecture and clarify its implications under very general conditions. We show in particular that if (i) agents are infinitely-lived, (ii) saving is risk-free, and (iii) agents have constant discount factors, then the wealth distribution inherits the tail behavior of income shocks (e.g., light-tailedness or the...[Show more]

dc.contributor.authorStachurski, John
dc.contributor.authorToda, Alexis Akira
dc.date.accessioned2020-07-15T05:22:00Z
dc.identifier.issn0022-0531
dc.identifier.urihttp://hdl.handle.net/1885/206211
dc.description.abstractIt has been conjectured that canonical Bewley–Huggett–Aiyagari heterogeneous-agent models cannot explain the joint distribution of income and wealth. The results stated below verify this conjecture and clarify its implications under very general conditions. We show in particular that if (i) agents are infinitely-lived, (ii) saving is risk-free, and (iii) agents have constant discount factors, then the wealth distribution inherits the tail behavior of income shocks (e.g., light-tailedness or the Pareto exponent). Our restrictions on utility require only that relative risk aversion is bounded, and a large variety of income processes are admitted. Our results show conclusively that it is necessary to go beyond standard models to explain the empirical fact that wealth is heavier-tailed than income. We demonstrate through examples that relaxing any of the above three conditions can generate Pareto tails.
dc.format.mimetypeapplication/pdf
dc.language.isoen_AU
dc.publisherAcademic Press
dc.rights© 2019 Elsevier Inc.
dc.sourceJournal of Economic Theory
dc.subjectIncome fluctuation problem
dc.subjectInequality
dc.subjectMoment generating function
dc.subjectTail decay rate
dc.titleAn impossibility theorem for wealth in heterogeneous-agent models with limited heterogeneity
dc.typeJournal article
local.description.notesImported from ARIES
local.identifier.citationvolume182
dcterms.dateAccepted2019-04-05
dc.date.issued2019-04-12
local.identifier.absfor140199 - Economic Theory not elsewhere classified
local.identifier.absfor140299 - Applied Economics not elsewhere classified
local.identifier.ariespublicationu3102795xPUB3304
local.publisher.urlhttps://www.sciencedirect.com/
local.type.statusPublished Version
local.contributor.affiliationStachurski, John, College of Business and Economics, ANU
local.contributor.affiliationToda, Alexis Akira, University of California San Diego
local.description.embargo2037-12-31
local.bibliographicCitation.startpage1
local.bibliographicCitation.lastpage24
local.identifier.doi10.1016/j.jet.2019.04.001
local.identifier.absseo970114 - Expanding Knowledge in Economics
local.identifier.absseo970101 - Expanding Knowledge in the Mathematical Sciences
dc.date.updated2020-03-29T07:16:31Z
local.identifier.scopusID2-s2.0-85064252269
CollectionsANU Research Publications

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