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Consumption Wedges: Measuring and Diagnosing Distortions -- by Sasha Indarte, Raymond Kluender, Ulrike Malmendier, Michael Stepner
A new academic working paper by researchers from Wharton, MIT, UC Berkeley, and University of Toronto develops a 'sufficient-statistics' framework to measure individual-level consumption wedges — deviations from frictionless optimal consumption — using administrative transactions data linked to surveyed expectations for middle-income, low-liquidity US consumers. The study finds consumption wedges are large and heterogeneous, with a median wedge of 40% of frictionless consumption, and concludes t