Interpreting Life-Cycle Inequality Patterns asan Efficient Allocation: Mission Impossible?

Mark Huggett and Alejandro Badel ()

Working Papers from Georgetown University, Department of Economics

Abstract: Data on consumption, earnings, wages and hours dispersion over the life cycle has been viewed as being at odds with an efficient allocation. We challenge this view. We show that a model with preference and wage shocks and full insurance produces the type of inequality patterns across age groups found in U.S. data. The efficient allocation model requires an increasing preference shifter dispersion profile to account for an increasing consumption dispersion profile. We examine U.S. data and find support for the view that the dispersion in preference shifters increases with age.

Keywords: Life Cycle Inequality; Efficient Allocation; Preference Shocks (search for similar items in EconPapers)
JEL-codes: D52 D91 E21 (search for similar items in EconPapers)
Date: 2007-07-03
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (10)

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Related works:
Journal Article: Interpreting Life Cycle Inequality Patterns as an Efficient Allocation: Mission Impossible? (2014)
Working Paper: Interpreting life-cycle inequality patterns as an efficient allocation: mission impossible? (2010)
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