Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/167558 
Year of Publication: 
2017
Series/Report no.: 
CESifo Working Paper No. 6572
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper develops an incomplete markets model with state dependent (Markovian) stochastic earnings processes and ex ante skill heterogeneity corresponding to being university educated or not. Using the Wealth and Assets Survey for Great Britain, we find that the university educated group has higher average wealth, higher earnings risk but lower within group wealth inequality. Using estimates of the earnings processes for each group to calibrate the model, we find wealth inequality within and between the groups that is consistent with the data. Moreover, the predictions for overall wealth inequality are closer to the data, compared to the benchmark model with ex ante identical households. In this framework, ex ante skill heterogeneity generates a between-group pecuniary externality which in turn leads to the predicted differences in wealth inequality between the groups and works as an amplification mechanism to increase overall wealth inequality.
Subjects: 
incomplete markets
education differences
pecuniary externalities
JEL: 
E21
E25
H23
Document Type: 
Working Paper
Appears in Collections:

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.