Suchergebnisse

This paper studies the role of information acquisition in propagating/stabilizing uncertainty shocks in a dynamic financial market. In a static world, uncertainty raises the value of information, which encourages more information acquisition. In a dynamic world, however, uncertainty can depress information acquisi-tion through a dynamic complementarity channel: More uncertainty induces future investors to trade more cautiously. This renders future resale stock price less informative and reduces the value of information today. Due to the dynamic complementarity, transitory uncertainty shocks can have long-lasting impacts. Direct government purchases can stimulate information production, eliminate equilibrium multiplicity, and attenuate the impacts of uncertainty shocks by raising the effective risk-bearing capacity of the informed investors.

This paper evaluates the role of rising income inequality in explaining observed growth in college tuition. We develop a competitive model of the college market, in which college quality depends on instructional expenditure and the average ability of admitted students. An innovative feature of our model is that it allows for a continuous distribution of college quality. We find that observed increases in US income inequality can explain more than half of the observed rise in average net tuition since 1990 and that rising income inequality has also depressed college attendance. (JEL D31, I22, I23, I24)