This paper responds to Hemmer's (2019) critique of Lambert's (1984) paper on income smoothing. Lambert develops and analyzes a two-period agency model in which he shows income smoothing, defined as the second period action being a decreasing function of the first period outcome, is part of the equilibrium. Hemmer claims Lambert's analysis contains errors, and that income smoothing does not occur in the model. Here, I confirm the Lambert results, show why Hemmer's results appear different than mine, and make clearer the economic forces behind why income smoothing occurs.

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