This paper examines the appropriate use of cross-section microdata in life cycle models. Drawing upon recent empirical work based upon panel data, we illustrate how these results can be used as priors to generate a distribution of life cycle earnings. Such a surrogate distribution can be shown to possess the same properties as actual distributions. We focus attention particularly upon the treatment of economic growth and the unobservable components of earnings. In the final section of the paper, we show how such distributions might be used in inequality analysis.
This paper derives a transactions theory of trade credit use from the motives of trading partners to economize on the joint costs of exchange. In the formal analysis, uncertain delivery time is used to generate a demand by firms to hold inventories of both goods and money. Trade credit is viewed as a mechanism that separates the exchange of money from the uncertainty present in the exchange of goods. By forewarning both trading partners of the timing of money flows, credit permits a reduction in precautionary money holdings and the more effective management of net money accumulations.