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Why Has CEO Pay Increased so Much?
This paper develops a simple equilibrium model of CEO pay. CEOs have different talents and are matched to firms in a competitive assignment model. In market equilibrium, a CEO’s pay changes one for
Zipf's Law for Cities: An Explanation
Zipf ’s law is a very tight constraint on the class of admissible models of local growth. It says that for most countries the size distribution of cities strikingly fits a power law: the number of
The Granular Origins of Aggregate Fluctuations
This paper proposes that idiosyncratic firm-level fluctuations can explain an important part of aggregate shocks, and provide a microfoundation for aggregate productivity shocks. Existing research
Variable Rare Disasters: An Exactly Solved Framework for Ten Puzzles in Macro-Finance
This paper incorporates a time-varying intensity of disasters in the Rietz-Barro hypothesis that risk premia result from the possibility of rare, large disasters. During a disaster, an asset’s
Power Laws in Economics and Finance
A power law is the form taken by a large number of surprising empirical regularities in economics and finance. This article surveys well-documented empirical power laws concerning income and wealth,
Rank − 1 / 2: A Simple Way to Improve the OLS Estimation of Tail Exponents
Despite the availability of more sophisticated methods, a popular way to estimate a Pareto exponent is still to run an OLS regression: log(Rank) = a − b log(Size), and take b as an estimate of the
Power Laws in Economics and Finance
A power law (PL) is the form taken by a large number of surprising empirical regularities in economics and finance. This review surveys well-documented empirical PLs regarding income and wealth, the
A Sparsity-Based Model of Bounded Rationality
This paper defines and analyzes a "sparse max" operator, which is a less than fully attentive and rational version of the traditional max operator. The agent builds (as economists do) a simplified
A Multiplicative Model of Optimal CEO Incentives in Market Equilibrium
This paper presents a unified theory of both the level and sensitivity of pay in competitive market equilibrium, by embedding a moral hazard problem into a talent assignment model. By considering
The Age of Reason: Financial Decisions over the Life Cycle and Implications for Regulation
Many consumers make poor financial choices, and older adults are particularly vulnerable to such errors. About half of the population between ages 80 and 89 have a medical diagnosis of substantial
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