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A note on income risks and their implications for wealth concentration

Author

Listed:
  • Mohsen Mohaghegh

    (Indian Institute of Management Ahmedabad)

Abstract

Income risks are not accurately captured by standard AR processes that are common in the literature. This paper proposes a simple stochastic process which matches several moments in the data including the cross-sectional distribution of income and the distribution income risk, and can be easily used in models with uninsurable income risk. Incorporating this process into an off-the-shelf OLG model leads to a rise in wealth concentration narrowing the gap between traditional models and the data. However, the right tail of the wealth distribution remains significantly thinner than the data.

Suggested Citation

  • Mohsen Mohaghegh, 2025. "A note on income risks and their implications for wealth concentration," Economics Bulletin, AccessEcon, vol. 45(1), pages 564-576.
    • Handle: RePEc:ebl:ecbull:eb-24-00333
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    File URL: http://www.accessecon.com/Pubs/EB/2025/Volume45/EB-25-V45-I1-P50.pdf
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    More about this item

    Keywords

    Incomplete Markets; Earning Risks; Precautionary Savings; Wealth Concentration;
    All these keywords.

    JEL classification:

    • D3 - Microeconomics - - Distribution
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling

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