Age Clienteles Induced by Liquidity Constraints
Lifetime consumption-portfolio rules are analyzed for individuals with nonmarketable income. Future income for which liquidity constraints are not binding is "effectively marketable" and is capitalized, while other income is not capitalized. If the age-income profile is humped, then, for a given level of marketable wealth, relative risk aversion to gambles in marketable wealth is low for the middle-aged and high for the retired in the special case of isoelastic utility. The existence of these clienteles suggests that equilibrium security prices are determined, in part, by the distribution of wealth over age groups in the economy. Copyright 1990 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Volume (Year): 31 (1990)
Issue (Month): 4 (November)
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