The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Aiyagari, S. Rao (1952–1997)

  • Zvi Eckstein
  • Dan Peled
Reference work entry


S. Rao Aiyagari was 45 years old when he died in 1997, just as his approach to dynamic macroeconomic research was gaining recognition. Rao’s vision was motivated by empirical observations and academic debates stemming from the different implications of aggregate and individual economic data. In particular, individual earnings, saving, wealth and labour exhibit much larger fluctuations over time than per-capita averages, and accordingly significant individual mobility is hidden within these cross-sectional distributions. Rao became convinced that this kind of heterogeneity and individual dynamics has important implications for the understanding of aggregate economic data and can provide new insights on the role of various economic policies.


Generational altruism Borrowing constraints Consumption inequality Dynamic macroeconomics Dynastic models Income inequality Idiosyncratic income shocks Market frictions Mobility Numerical solution techniques Optimal taxation Overlapping generations models Precautionary saving Risk aversion Taxation of capital Taxation of capital income Time preference Uninsurable idiosyncratic risks 

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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Zvi Eckstein
    • 1
  • Dan Peled
    • 1
  1. 1.