Download or read book Optimization of Consumption with Labor Income written by Nicole El Karoui and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We present the solution of a portfolio optimization problem for an economic agent endowed with a stochastic insurable stream, under a liquidity constraint over the time interval [0,T]. Generally, the existence of labor income complicates the agent's decisions. Moreover, in the real world the economic agents are restricted in their ability to borrow against their future labor income. We deal with this kind of liquidity constraint following the lines of American option valuation which allows us to give a precise characterization of the optimal consumption as well as the terminal wealth. In a Markovian case, with infinite horizon and HARA utility, we obtain a closed form solution.

Download or read book Optimal consumption and portfolio choice with dynamic labor income written by Daniel Moos and published by . This book was released on 2011 with total page 153 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Optimal Consumption and Equilibrium Prices with Portfolio Cone Constraints and Stochastic Labor Income written by Domenico Cuoco and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the individual's consumption and investment problem when labor income follows a general bounded process and the dollar amounts invested in the risky assets are constrained to take values in a given nonempty, closed, convex cone. Short sale constraints, as well as incomplete markets, can be modeled as special cases of this setting. Existence of optimal policies is established using martingale and duality techniques under fairly general assumptions on the security price coefficients and the individual's utility function. This result is obtained by reformulating the individual's dynamic optimization problem as a dual static problem over a space of martingales. An explicit characterization of equilibrium risk premia in the presence of portfolio constraints is also provided. In the unconstrained case, this characterization reduces to Consumption-based Capital Asset Pricing Model.

Download or read book A Closed Form Solution to the Continuous Time Consumption Model with Endogenous Labor Income written by Aihua Zhang and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we study the consumption, labor supply, and portfolio decisions of an (infinitely-lived) individual who receives a certain wage rate and income from investment into a risky asset and a risk-free bond. Uncertainty about labor income arises endogenously, because labor supply evolves randomly over time in response to changes in financial wealth. We derive closed-form solutions for optimal consumption, labor supply and investment strategy. We find that deferring the retirement age stimulates optimal consumption over time and discourages optimal labor supply during the working life. We also find explicitly that optimal portfolio allocation becomes more 'conservative' when the individual approaches his prescribed retirement age. The effects of risk-aversion coefficients on optimal decisions are examined.

Download or read book Consumption and Labor Supply Under Dynamic Optimization written by Tony H. Elavia and published by . This book was released on 1984 with total page 138 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Income Distribution in Macroeconomic Models written by Giuseppe Bertola and published by Princeton University Press. This book was released on 2014-09-28 with total page 440 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book looks at the distribution of income and wealth and the effects that this has on the macroeconomy, and vice versa. Is a more equal distribution of income beneficial or harmful for macroeconomic growth, and how does the distribution of wealth evolve in a market economy? Taking stock of results and methods developed in the context of the 1990s revival of growth theory, the authors focus on capital accumulation and long-run growth. They show how rigorous, optimization-based technical tools can be applied, beyond the representative-agent framework of analysis, to account for realistic market imperfections and for political-economic interactions. The treatment is thorough, yet accessible to students and nonspecialist economists, and it offers specialist readers a wide-ranging and innovative treatment of an increasingly important research field. The book follows a single analytical thread through a series of different growth models, allowing readers to appreciate their structure and crucial assumptions. This is particularly useful at a time when the literature on income distribution and growth has developed quickly and in several different directions, becoming difficult to overview.

Download or read book Consumption and Investment Optimization Under Constraints written by Thanh Long Nguyen and published by . This book was released on 2008 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze a problem of maximization of expected terminal wealth and consumption under constraints in a general financial framework, which includes models with constrained portfolios, labor income and large investor models. By introducing the new finite probability space, as well as a new utility function, the considered problem is converted to the one studied by Pham and Mnif (2002) [48]. By using general optional decomposition under constraints, we can develop a dual formulation under minimal assumption modeled as in Pham and Mnif (2002) [48]. We then are able to prove an existence and uniqueness of an optimal solution to primal problem. Under the assumption that there exists a solution to the corresponding dual problem, an optimal consumption plan can be found by convex duality.

Download or read book Labor Supply written by Miles S. Kimball and published by . This book was released on 2008 with total page 82 pages. Available in PDF, EPUB and Kindle. Book excerpt: Labor supply is unresponsive to permanent changes in wage rates. Thus, income and substitution effects cancel, but are they both close to zero or both large? This paper develops a theory of labor supply where income and substitution effects cancel, taking into account optimization over time, fixed costs of going to work, and interactions of labor supply decisions within the household. The paper then applies this theory to survey evidence on the response of labor supply to a large wealth shock. The evidence implies that the constant marginal utility of wealth (Frisch) elasticity of labor supply is about one.

Download or read book Labor Income Risk and Consumption Saving Behavior written by Davud Rostam-Afschar and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Permanent and Transitory Movements in Labor Income and Explanation for excess Smoothness in Consumption written by Danny Quah and published by . This book was released on 1989 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book National Saving and Economic Performance written by B. Douglas Bernheim and published by University of Chicago Press. This book was released on 1991-05 with total page 408 pages. Available in PDF, EPUB and Kindle. Book excerpt: "... Papers presented at a conference held at the Stouffer Wailea Hotel, Maui, Hawaii, January 6-7, 1989. ... part of the Research on Taxation program of the National Bureau of Economic Research." -- p. ix.

Download or read book Intertemporal Substitution in Macroeconomics written by N. Gregory Mankiw and published by . This book was released on 1982 with total page 70 pages. Available in PDF, EPUB and Kindle. Book excerpt: Modern neoclassical theories of the business cycle posit that aggregate fluctuations in consumption and employment are the consequence of dynamic optimizing behavior by economic agents who face no quantity constraint. In this paper, we estimate an explicit model :f this type. In particular, we assume that the observed fluctuations correspond to the decisions of an optimizing representative individual. This individual has a stable utility function which is additively separable over time but not necessarily additively separable in consumption and leisure. We estimate three first order conditions which represent three margins on which the individual is optimizing. He can trade off present consumption for future consumption, present leisure for future leisure and present consumption for present leisure. Our results show that the aggregate U.S. data are extremely reluctant to be characterized by a model of this type. Not only are the overidentifying restrictions statistically rejected but, in addition, the estimated utility function is often not concave. Even when it is concave the estimates imply that either consumption or leisure is an inferior good.

Download or read book Heterogeneity and Persistence in Returns to Wealth written by Andreas Fagereng and published by International Monetary Fund. This book was released on 2018-07-27 with total page 69 pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide a systematic analysis of the properties of individual returns to wealth using twelve years of population data from Norway’s administrative tax records. We document a number of novel results. First, during our sample period individuals earn markedly different average returns on their financial assets (a standard deviation of 14%) and on their net worth (a standard deviation of 8%). Second, heterogeneity in returns does not arise merely from differences in the allocation of wealth between safe and risky assets: returns are heterogeneous even within asset classes. Third, returns are positively correlated with wealth: moving from the 10th to the 90th percentile of the financial wealth distribution increases the return by 3 percentage points - and by 17 percentage points when the same exercise is performed for the return to net worth. Fourth, wealth returns exhibit substantial persistence over time. We argue that while this persistence partly reflects stable differences in risk exposure and assets scale, it also reflects persistent heterogeneity in sophistication and financial information, as well as entrepreneurial talent. Finally, wealth returns are (mildly) correlated across generations. We discuss the implications of these findings for several strands of the wealth inequality debate.

Download or read book A Search Theoretic Explanation for the Negative Correlation Between Labor Income and Impatience written by Rubens Penha Cysne and published by . This book was released on 2014 with total page 16 pages. Available in PDF, EPUB and Kindle. Book excerpt: Lawrance (1991) has shown, through the estimation of consumption Euler equations, that subjective rates of impatience (time preference) in the U.S. are three to five percentage points higher for house holds with lower average labor incomes than for those with higher labor income. From a theoretical perspective, the sign of this correlation in a job-search model seems at first to be undetermined, since more impatient workers tend to accept wage offers that less impatient workers would not, thereby remaining less time unemployed. The main result of this paper is showing that, regardless of the existence of effects of opposite sign, and independently of the particular specifications of the givens of the model, less impatient workers always end up, in the long run, with a higher average income. The result is based on the (unique) invariant Markov distribution of wages associated with the dynamic optimization problem solved by the consumers. An example is provided to illustrate the method.

Download or read book Is Consumption Growth Consistent with Intertemporal Optimization written by Orazio P. Attanasio and published by . This book was released on 1994 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we show that some of the predictions of models of consumer intertemporal optimization are not inconsistent with the patterns of non-durable expenditure observed in US household-level data. Our results and our approach are new in several respects. First, we use the only US micro data set which has direct and complete information on household consumption. The microeconomic data sets used in most of the consumption literature so far contained either very limited information on consumption (like the PSID) or none at all, in which case consumption had to be obtained indirectly from income and changes in assets. Second, we propose a flexible and novel specification of preferences which is easily estimable and allows a general treatment jof multiple commodities. We show that aggregation over commodities can be important, both theoretically and in practice. Third, we present empirical results that show that it is possible to find a reasonably simple specification of preferences, which controls for the effects of changes in demographics and labor supply behavior over the life cycle and which is not rejected by the available data. On our preferred specification, we obtain sharp estimates of key behavioral parameters (including the elasticity of intertemporal substitution) and no rejections of theoretical restrictions. Our results contrast sharply with most of the previous evidence, which has typically been interpreted as rejection of the theory. We show that previous rejections can be explained by the simplifying assumptions made to derive empirically tractable equations. We also show that results obtained using food consumption or aggregate data can be extremely misleading.

Download or read book Heterogeneous Consumption and Labor Market Adjustments in Response to Birth Events and Its Implication for Dietary Quality written by Asare Twum-Barima and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Low-income households in developing countries frequently experience anticipated and unanticipated events that lead to decreases in their income. For households that depend on labor income, one of the main sources of decreases in their income is pregnancy. This is particularly true if the pregnant woman is one of the main income earners of the household. Forward-looking households expect the pregnant woman’s labor endowment to decrease during pregnancy and then increase during the early periods after birth. In addition to this, they expect to experience shocks to her labor endowment during pregnancy and after birth. In the absence of formal insurance and financial markets, low-income households make consumption and labor supply decisions (ex ante and ex post) in anticipation of decreases in their income. Consumption goods and services include food, clothing, healthcare, childcare, post-natal care, antenatal care, and entertainment. These realized and anticipated decreases in income can result in fluctuations in consumption over time, low consumption, and high levels of labor supply during pregnancy. A high level of labor supply by the pregnant woman can have detrimental effects on her health, and that of her child. This dissertation examines household ex ante consumption and labor supply behavior in anticipation of decreases in income. It also investigates the implication of household ex ante behavior for their dietary quality. In the theoretical model chapter of this dissertation, I use a flexible intertemporal consumption and labor supply model to analyze the intertemporal consumption and labor supply decisions of a household with a pregnant woman. Based on the results of the model, I present three results. Firstly, households regardless of their asset levels increase or decrease their consumption and leisure per adult equivalent over time depending on their discount and real interest rates. Secondly, the age of the infant has no effect on consumption per adult equivalent and labor supply per adult equivalent even though it has a direct effect on the household’s total adult equivalent and labor endowment. Lastly, the welfare implications of consumption and labor supply behavior for the mother and child depend on the household’s asset level. In another chapter, I empirically test some of the implications of the model using a unique data set collected from households with pregnant women in peri-urban Ghana. I show that households are able to smooth their nondurable consumption as well as food consumption in anticipation of decreases in their incomes irrespective of their relative wealth levels. It is possible that households sacrifice their dietary quality by changing the composition of their food expenditure in order to satisfy caloric requirements. I empirically explore changes in the composition of food expenditure and dietary quality during pregnancy and the early stages after birth. I find that households are able to smooth their food consumption without a decrease in their dietary quality during this period. The findings of this study can be used to help design consumption protection programs, nutrition programs, cash transfer programs, and safety nets. These programs are especially critical for households with vulnerable members such as pregnant women, lactating mothers, and children under five years of age.

Download or read book Handbooks in Operations Research and Management Science Financial Engineering written by John R. Birge and published by Elsevier. This book was released on 2007-11-16 with total page 1026 pages. Available in PDF, EPUB and Kindle. Book excerpt: The remarkable growth of financial markets over the past decades has been accompanied by an equally remarkable explosion in financial engineering, the interdisciplinary field focusing on applications of mathematical and statistical modeling and computational technology to problems in the financial services industry. The goals of financial engineering research are to develop empirically realistic stochastic models describing dynamics of financial risk variables, such as asset prices, foreign exchange rates, and interest rates, and to develop analytical, computational and statistical methods and tools to implement the models and employ them to design and evaluate financial products and processes to manage risk and to meet financial goals. This handbook describes the latest developments in this rapidly evolving field in the areas of modeling and pricing financial derivatives, building models of interest rates and credit risk, pricing and hedging in incomplete markets, risk management, and portfolio optimization. Leading researchers in each of these areas provide their perspective on the state of the art in terms of analysis, computation, and practical relevance. The authors describe essential results to date, fundamental methods and tools, as well as new views of the existing literature, opportunities, and challenges for future research.