I study the equilibrium behavior of wealth distribution in a dynamic model of financial markets with multiple groups of rational investors who may differ in their information sets, as well as a group of irrational investors with incorrect beliefs. The wealth distribution for all investor groups exhibits a thick right tail. The right tail of the overall distribution is populated either by a rational group...

Behavioral biases in investors' expectations can lead to a decoupling of asset prices from fundamentals, and risks to financial stability. Central bank communication could be a tool to mitigate these issues, but there is no theoretical guidance on how and when  to communicate  when some investors do not form expectations rationally. We develop a communication model that flexibly accounts for such deviations from rationality and...

We present a model of competition between ESG raters who acquire information about multiple unrelated categories and sell ratings. Raters specializing in different categories maximizes the amount of information transmitted and surplus, and can be the equilibrium outcome. When investors place a high value on ESG performance across multiple categories, the unique equilibrium is for the raters to generalize — splitting their effort among the categories, resulting in less informative ratings. Greenwashing...