Essays on dynamic agency, inequality and optimal taxation

The distributions of both income and wealth in the United States are heavily skewed to the right, with tails that may be well approximated by power laws. Further, business owners are disproportionately represented at the top of these distributions and are exposed to a high degree of idiosyncratic risk. This thesis explores the extent to which these facts together suggest imperfect risk-sharing remediable through government policy, by characterizing efficient allocations and long-run inequality in two dynamic economies that separately analyze different factors affecting business output. The first chapter focuses on the role of human capital and the second on physical capital. In each case I assume business ownership is subject to a dynamic agency problem, with the utility of each firm owner and the output of their firm depending upon actions observable only to themselves. To induce owners to increase output, their consumption must depend upon the performance of their firm, and this limits the extent to which risk may be shared across society. In each environment I calculate the degree of long-run inequality consistent with maximizing average welfare, subject to the restrictions imposed by technological constraints and the presence of asymmetric information. I then explore how these allocations may be implemented when agents may trade assets in decentralized markets and taxes are imposed on various forms of income.

Author dc:creator

• Phelan, Thomas

Language dc:language.iso

en

Handle dc:identifier.uri

http://hdl.handle.net/11299/201124

OAI identifier oai:identifier

oai:conservancy.umn.edu:11299/201124