The “annuity puzzle,” conveying the apparently low interest of retirees in longevity insurance, is central to household finance. Two possible explanations are “public care aversion” (PCA), retiree aversion to simultaneously running out of wealth and being in need of long‐term care, and an intentional bequest motive. To disentangle the relative importance of PCA and bequest motive, we estimate a structural model of the retirement phase using a novel survey instrument that includes hypothetical questions. We identify PCA as very significant and find bequest motives that spread deep into the middle class. Our results highlight potential interest in annuities that make allowance for long‐term care expenses.

A rent guarantee insurance (RGI) policy makes a limited number of rent payments to the landlord on behalf of an insured tenant unable to pay rent due to a negative income or health expenditure shock. We introduce RGI in a rich quantitative equilibrium model of housing insecurity and show it increases welfare by improving risk sharing across idiosyncratic and aggregate states of the world, reducing the need for a large security deposits, and reducing homelessness which imposes large costs on society. While unrestricted access to RGI is not financially viable due to moral hazard and adverse selection, restricting access can restore viability. Private insurers target better off renters to break even, while public insurers focus on households most at-risk of homelessness. Stronger tenant protections increase the effectiveness of RGI.

Three of the most fundamental changes in US corporations since the early 1970s have been (1) the increased importance of organizational capital in production, (2) the increase in managerial income inequality and pay-performance sensitivity, and (3) the secular decrease in labor market reallocation. Our paper develops a simple explanation for these changes: a shift in the composition of productivity growth away from vintage-specific to general growth. This shift has stimulated the accumulation of organizational capital in existing firms and reduced the need for reallocating workers to new firms. We characterize the optimal managerial compensation contract when firms accumulate organizational capital but risk-averse managers cannot commit to staying with the firm. A calibrated version of the model reproduces the increase in managerial compensation inequality and the increased sensitivity of pay to performance in the data over the last three decades. This increased sensitivity of compensation to performance provides large, successful firms with the glue to retain their managers and the organizational capital embedded in them.

The question of whether and how mutual fund managers provide valuable services for their clients motivates one of the largest literatures in finance. One candidate explanation is that funds process information about future asset values and use that information to invest in high-valued assets. But formal theories are scarce because information choice models with many assets are difficult to solve as well as difficult to test. This paper tackles both problems by developing a new attention allocation model that uses the state of the business cycle to predict information choices, which in turn, predict observable patterns of portfolio investments and returns. The predictions about fund portfolios ’ covariance with payoff shocks, cross-fund portfolio and return dispersion, and their excess returns are all supported by the data. In turn, these findings offer new evidence that some investment managers have skill and that attention is allocated rationally.

Real and private-value assets—defined here as the sum of real estate, infrastructure, collectibles, and noncorporate business equity—compose an investment class worth an estimated $84 trillion in the U.S. alone. Furthermore, private values can affect pricing in many other financial markets, such as that for sustainable investments. This paper introduces the research on real assets and private values that can be found in this special issue. It also reviews recent advances and highlights new research directions on a number of topics in the real assets space that we believe to be particularly important and exciting.

Homeownership is widely stimulated by policy, yet its economic effects are poorly understood. We exploit quasi-random variation in homeownership generated by privatization decisions of municipally owned buildings and use granular data on demographics, income, housing, financial wealth, and debt that allow us to construct high-quality measures of spending. Homeownership causes wealth accumulation via house price appreciation, increases consumption, and improves consumption smoothing across time and states of the world. It increases mobility for young households, who move up the property ladder, and amplifies wealth accumulation for older households, who take more risk in their financial portfolio.

We examine the pricing of financial crash insurance during the 2007–2009 financial crisis in US option markets, and we show that a large amount of aggregate tail risk is missing from the cost of financial sector crash insurance during the crisis. The difference in costs between out-of-the-money put options for individual banks and puts on the financial sector index increases four-fold from its precrisis 2003–2007 level. We provide evidence that a collective government guarantee for the financial sector lowers index put prices far more than those of individual banks and explains the increase in the basket-index put spread.

Long Run Risk, the Wealth-Consumption Ratio, and the Temporal Pricing of Risk by Ralph S. J. Koijen, Hanno Lustig, Stijn Van Nieuwerburgh and Adrien Verdelhan. Published in volume 100, issue 2, pages 552-56 of American Economic Review, May 2010

We show that the COVID-19 pandemic brought house price and rent declines in city centers, and price and rent increases away from the center, thereby flattening the bid-rent curve in most U.S. metropolitan areas. Across MSAs, the flattening of the bid-rent curve is larger when working from home is more prevalent, housing markets are more regulated, and supply is less elastic. Housing markets predict an urban revival with urban rent growth exceeding suburban rent growth for the foreseeable future, as working from home recedes.

We show that firms׳ idiosyncratic volatility obeys a strong factor structure and that shocks to the common idiosyncratic volatility (CIV) factor are priced. Stocks in the lowest CIV-beta quintile earn average returns 5.4% per year higher than those in the highest quintile. The CIV factor helps to explain a number of asset pricing anomalies. We provide new evidence linking the CIV factor to income risk faced by households. Our findings are consistent with an incomplete markets heterogeneous agent model. In the model, CIV is a priced state variable because an increase in idiosyncratic firm volatility raises the average household׳s marginal utility. The calibrated model matches the high degree of co-movement in idiosyncratic volatilities, the CIV-beta return spread, and several other asset price moments.