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Kenan Institute 2025 Grand Challenge: Skills Gap
Research • Insight • Growth
Research
Nov 12, 2013

Welfare Costs in the Long Run

Abstract

This study provides general methods to measure and characterize the welfare costs of long-run consumption uncertainty with Epstein and Zin (1989) preferences. I find that long-run uncertainty can create significant welfare costs even when risk aversion is moderate and the short-run consumption volatility low. These findings are relevant for the assessment of policies that require a trade-off between short- and long-run stabilization.

Note: Research papers posted on SSRN, including any findings, may differ from the final version chosen for publication in academic journals.


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