In recent years, remote work surged across the globe. We develop a novel macroeconomic model in which firms employ some workers remotely, trading-off potential productivity losses against savings on costs. Quantifying the model using U.S. data suggests that the surge in remote work (i) was primarily driven by workers’ preferences, (ii) increased profitability and encouraged firm entry and (iii) shifted the firm distribution towards smaller businesses because they benefit relatively more from associated reductions in (fixed) costs. While increased entry sparks a boom, a larger share of small firms lowers aggregate productivity. Barriers to firm entry, therefore, emerge as a crucial margin determining the overall impact of the remote work revolution. Finally, we propose a novel identification strategy to estimate the firm-level effects of remote work, validating the model’s key mechanisms and predictions.

This paper studies how wealth and aging affect portfolio choices in a life-cycle model with ambiguity aversion. Ambiguity aversion implies that wealthier and older agents are endogenously more optimistic about risky asset returns, relative to poorer younger agents. As life expectancy grows, old agents become even more optimistic, while young agents become more pessimistic, amplifying the age gaps in portfolio composition, and implying further increases in intergenerational inequality. We find evidence for the mechanism in survey data on portfolios and subjective life expectancy. In a quantitative extension of the model, plausible life expectancy projections imply a 26% increase in the age-gradient of conditional risky asset shares between 2019 and 2100.

Why are wealthy individuals more likely to become entrepreneurs? With no prior experience, starting a private business is an uncharted territory. As a result, an entrepreneur’s investment decision is subject to Knightian uncertainty, which is modelled as wealth-dependent preference for robustness. Agents with a history of good income shocks select themselves to become entrepreneurs, since the buffer of higher wealth allows them to hold relatively optimistic beliefs about investment returns. The decline in the proportion of entrepreneurs since the 1980s can be largely attributed to an increase in uncertainty, resulting in a “hollowing out” effect on the middle class.