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The potential for rare economic disasters explains a lot of asset-pricing puzzles. I calibrate disaster probabilities from the twentieth century global history, especially the sharp contractions associated with World War I, the Great Depression, and World War II. The puzzles that can be explained include the high equity premium, low risk-free rate, and(More)
This paper uses scanner price data collected in retail stores to document that (i) although the average magnitude of price changes is large, a substantial number of price changes are small in absolute value; (ii) the distribution of non-zero price changes has fat tails; and (iii) stores tend to adjust prices of goods in narrow product categories(More)
and the referees for their input in preparing this manuscript. I thank Edward R. Allen III, Ravi Jagannathan, and Deborah Lucas for our many interesting and enlightening conversations on the subject of asset pricing over the years. Finally, I thank Lars Hansen for teaching me how to think about the issues addressed in this paper. None of the preceding(More)
In this paper, I consider a dynamic economy in which a government needs to finance a stochastic process of purchases. The agents in the economy are privately informed about their skills, which evolve stochastically over time in an arbitrary fashion. I construct an optimal tax system that is restricted to be linear in an agent's wealth but can be arbitrarily(More)
We present an equilibrium theory of the organization of work in an economy where knowledge is an essential input in production and agents are heterogeneous in skill. Agents organize production by matching with others in knowledge hierarchies designed to use and communicate their knowledge efficiently. Relative to autarky, organization leads to larger(More)
A n umber of existing studies have concluded that risk sharing allocations supported by competitive , incomplete markets equilibria are quantitatively close to rst-best. Equilibrium asset prices in these models have been diicult to distinguish from those associated with a complete markets model, the counterfactual features of which h a ve been widely(More)
This paper examines the sets of feasible allocations in a large class of economic environments in which commitment is impossible (following Myerson [8], the standard definition of feasibility is adapted to take account of the lack of commitment). The environments feature either memory or money. Memory is defined as knowledge on the part of an agent of the(More)
In this paper, I consider the problem of optimal unemployment insurance in a world in which the unemployed agent's job-finding effort is unobservable and his level of savings is unobservable. I show that the first-order approach is not always valid for this problem, and I argue that the available recursive procedures are not currently computationally(More)