| Summary: | This thesis describes and implements a method to carry out policy analysis within an equilibrium framework. This method allows to account for potential effects induced by price adjustments. The analysis is based on overlapping generation, life-cycle models where heterogeneous agents make endogenous decisions regarding their consumption and education as well as labour supply and criminal activity. Some of the agent's optimising decisions (education, crime) are discrete choices. The first part of the thesis deals with the issue of including binary decision choices in a life cycle model: the implications of non-convex choice sets in life cycle models with uninsurable idiosyncratic risk are studied in detail and some results on the properties of the individual problem's solution are provided. Next, we apply the proposed framework to analyse two distinct policy questions. The first application looks at the equilibrium analysis of tuition policies on the distribution of education and income. Empirical evidence suggests a link between human capital accumulation and wage dispersion. We experiment with college tuition subsidies and find that while in partial equilibrium such policies can be very effective in increasing education levels and reducing inequality in general equilibrium the results are less encouraging. The second application considers whether policies targeting a reduction in crime rates through changes in education outcomes can be considered an effective and cost-viable alternative to interventions based on harsher punishment alone. I find that policies targeting crime reduction through increases in high school graduation rates are cost-effective, especially if they are targeted at the poor.
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