Home  About us  Contact
 

Income Risk (income + risk)

Distribution by Scientific Domains
Business, Economics, Finance and Accounting100%

Selected Abstracts

A Parsimonious Macroeconomic Model for Asset Pricing

ECONOMETRICA, Issue 6 2009
Fatih Guvenen
I study asset prices in a two-agent macroeconomic model with two key features: limited stock market participation and heterogeneity in the elasticity of intertemporal substitution in consumption (EIS). The model is consistent with some prominent features of asset prices, such as a high equity premium, relatively smooth interest rates, procyclical stock prices, and countercyclical variation in the equity premium, its volatility, and in the Sharpe ratio. In this model, the risk-free asset market plays a central role by allowing non-stockholders (with low EIS) to smooth the fluctuations in their labor income. This process concentrates non-stockholders' labor income risk among a small group of stockholders, who then demand a high premium for bearing the aggregate equity risk. Furthermore, this mechanism is consistent with the very small share of aggregate wealth held by non-stockholders in the U.S. data, which has proved problematic for previous models with limited participation. I show that this large wealth inequality is also important for the model's ability to generate a countercyclical equity premium. When it comes to business cycle performance, the model's progress has been more limited: consumption is still too volatile compared to the data, whereas investment is still too smooth. These are important areas for potential improvement in this framework. [source]

Would a Flat-Rate Tax Stimulate Entrepreneurship in Germany?

FISCAL STUDIES, Issue 2 2009
A Behavioural Microsimulation Analysis Allowing for Risk
H24; J23; L26; D81 Abstract When potential income tax reforms are debated, the suspected impact on entrepreneurship is often used as an argument in favour of or against a certain policy. Quantitative ex-ante evaluations of the effect of certain tax reform options on entrepreneurship are very rare, however. This paper estimates the ex-ante effects of the German tax reform 2000 and of two hypothetical flat-rate tax scenarios on entries into and exits out of self-employment based on a structural microsimulation model with econometrically estimated transition rates under risk. The simulation results indicate that flatter tax systems do not encourage people to choose self-employment, but rather discourage them from doing so. This is explained by the reduction of entrepreneurs' income risk through progressive taxation. [source]

Optimal Life-Cycle Asset Allocation: Understanding the Empirical Evidence

THE JOURNAL OF FINANCE, Issue 2 2005
FRANCISCO GOMES
ABSTRACT We show that a life-cycle model with realistically calibrated uninsurable labor income risk and moderate risk aversion can simultaneously match stock market participation rates and asset allocation decisions conditional on participation. The key ingredients of the model are Epstein,Zin preferences, a fixed stock market entry cost, and moderate heterogeneity in risk aversion. Households with low risk aversion smooth earnings shocks with a small buffer stock of assets, and consequently most of them (optimally) never invest in equities. Therefore, the marginal stockholders are (endogenously) more risk averse, and as a result they do not invest their portfolios fully in stocks. [source]

Public Responses to Agricultural Disasters: Rethinking the Role of Government

CANADIAN JOURNAL OF AGRICULTURAL ECONOMICS, Issue 4 2007
Barry K. Goodwin
We provide a broad overview of the role and history of federal disaster relief in U.S. agriculture. We discuss various economic arguments that may be used as justification for such disaster relief and subsidized insurance programs. In general, we find no persuasive argument that market failure justifies subsidized risk management activities by the government. Important exceptions exist in the case of catastrophic damages to public infrastructure, invasive and communicable disease threats, and the hazards posed by accidental or deliberate contamination of food supplies in that the presence of significant transactions costs may inhibit private market solutions. We also consider a panel VAR analysis of the dynamic interrelationships among market returns and farm program payments conveyed under three different types of programs,disaster assistance, crop insurance, and all other direct payments. An important finding is that disaster and insurance payments appear to imply higher subsequent levels of market income risk in agriculture. This finding is consistent with arguments that subsidized disaster assistance and insurance may lead to greater risk in agriculture. Nous présentons un large aperçu du rôle et de l'historique du programme fédéral d'assistance en cas de catastrophe agricole aux États-Unis. Nous analysons différents arguments économiques qui peuvent justifier ces programmes d'aide et d'assurance subventionnés. En général, nous ne trouvons aucun argument convaincant comme quoi une défaillance de marché justifie des activités de gestion du risque subventionnées par le gouvernement. Cependant, des exceptions importantes existent pour les cas de dommages catastrophiques à des infrastructures publiques; de menaces de maladies contagieuses et invasives; et de dangers associés à la contamination accidentelle ou délibérée de la chaîne alimentaire, auquel cas les coûts de transaction importants pourraient inhiber les solutions du marché privé. Nous considérons également une analyse panel VAR des relations entre les rendements de marché et les paiements versés en vertu de trois types de programme: assistance en cas de catastrophe, assurance récolte et tout autre type de paiement direct. Nous en arrivons à la conclusion importante que les paiements d'assurance et d'aide aux sinistrés semblent mener à des niveaux de risque relatif au revenu marchand plus élevés dans le secteur de l'agriculture. Ceci concorde avec les arguments voulant que les programmes subventionnés d'assurance et d'assistance en cas de catastrophe mènent à une augmentation des risques dans le secteur de l'agriculture. [source]

Optimal Dynamic Trading Strategies

ECONOMIC NOTES, Issue 1 2004
Douglas T. Breeden
This article presents a straightforward technique for computing solutions to discrete, multi-period consumption/investment problems. It solves for the optimal stochastic consumption plans, as well as the optimal dynamic trading strategies that maximize utility for an individual. The technique permits general utility functions that may or may not be time-separable. It also allows general changes in the investment opportunity set and allows the user to impose upper and lower bounds on trading behaviour. Divergent borrowing and lending rates can be handled, as can stochastic labour income risks. Computed solutions verify the predictions of well-known intertemporal works by Merton, Breeden and others. J.E.L.:G13). [source]