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. Classification-JEL Codes: E21, D91, D52
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Paper provided by Georgetown University, Department of Economics in its series Working Papers with number
gueconwpa~07-07-03.
Length: Date of creation: 03 Jul 2007 Date of revision: Handle: RePEc:geo:guwopa:gueconwpa~07-07-03
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