Income Distribution Dynamics: Marriage and Informational
Cascades
Kwang Woo Park, Paul J. Zak
ken.park@cgu.edu
This paper investigates the role of household formation
on income distribution dynamics. This is accomplished by building an
age-structured general equilibrium model in which agents are endowed with
physical and psychological attributes that affect marriage and fertility
decisions. Personal characteristics are transmitted from parents to
children resulting in intergenerational persistence of marriage patterns
and houseshold income. Further, psychological factors allow fads and
fashions to impact distributional dynamics. After calibrating the model,
the dynamics of several variants of the model are simulated and tested against
the data. We find that psychological factors affecting marriage explain
a substantial proportion of income distribution dynamics.