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12:30 - 13:30 25 April 2012

The wrong shape of insurance? What cross-sectional distributions tell us about models of consumption-smoothing

Location

Room B06 | Drayton House (link Map)
30 Gordon Street | London | WC1H 0AN | United Kingdom

Open to: Academic | Student
Ticketing: Open

Speaker information

Tobias Broer, IIES

This paper shows how two standard models of consumption risk-sharing - self-insurance through borrowing and saving and limited commitment to insurance contracts - replicate similarly well the standard, second-moment measures of insurance observed in US micro-data. A non-parametric analysis, however, reveals strongly contrasting and counterfactual joint distributions of consumption, income and wealth. Method of moments estimation shows how measurement error in consumption eliminates excessive skewness and concentration of consumption growth. Moreover, counterfactual non-linearities disappear at high estimated risk-aversion under self-insurance, but are a robust feature of limited commitment. Its ``shape of insurance" thus argues strongly in favour of the self-insurance model.


Contact

Department of Economics - Reception
020 7679 5888 |


Links

Seminar Paper


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