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)

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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 acquisition 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.

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This paper explores a model in which large transitory financial shocks can generate persistent slumps in output, land prices, and interest rate. The propagation originates from high sensitivity of land prices with respect to fundamental, which is achieved by a land consumption channel that exploits the high complementarity of land services and consumption in households' preference. When this complementarity is disciplined by micro-level evidence, the unique recursive equilibrium features an S-shaped law of motion for capital with two locally stable steady states. Small shocks move the economy around the unconstrained steady state whereas large transitory financial shocks push the economy into the constrained steady state at which low interest rate makes firm unwilling to save out of the financial friction, leading to a secular stagnation.