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

Badel, Alejandro; Huggett, Mark

doi:10.2139/ssrn.1699780

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

Federal Reserve Bank of St. Louis Working Paper No. 2010-046C

35 Pages Posted: 30 Oct 2010 Last revised: 24 Jul 2014

See all articles by Alejandro Badel

Alejandro Badel

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Mark Huggett

Georgetown University - Department of Economics

Date Written: February 1, 2014

Abstract

The life-cycle patterns of consumption, wage and hours inequality observed in U.S. cross-section data are commonly viewed as incompatible with a Pareto efficient allocation. We determine the extent to which these qualitative and quantitative patterns can or cannot be produced by Pareto efficient allocations in models with preference shocks, wage shocks and full information.

Keywords: Life Cycle, Inequality, Efficient Allocation, Preference Shocks

JEL Classification: E21, D91, D52

Suggested Citation: Suggested Citation

Badel, Alejandro and Huggett, Mark, Interpreting Life-Cycle Inequality Patterns as an Efficient Allocation: Mission Impossible? (February 1, 2014). Federal Reserve Bank of St. Louis Working Paper No. 2010-046C, Available at SSRN: https://ssrn.com/abstract=1699780 or http://dx.doi.org/10.2139/ssrn.1699780