TY - JOUR
T1 - Consumption and labor supply with partial insurance
T2 - An analytical framework
AU - Heathcote, Jonathan
AU - Storesletten, Kjetil
AU - Violante, Giovanni L.
PY - 2014/7
Y1 - 2014/7
N2 - We develop a model with partial insurance against idiosyncratic wage shocks to quantify risk sharing. Closed-form solutions are obtained for equilibrium allocations and for moments of the joint distribution of consumption, hours, and wages. We prove identification and demonstrate how labor supply data are informative about risk sharing. The model, estimated with US data over the period 1967-2006, implies that (i) 39 percent of permanent wage shocks pass through to consumption; (ii ) the share of wage risk insured increased until the early 1980s; and (iii) preference heterogeneity is important in accounting for observed dispersion in consumption and hours.
AB - We develop a model with partial insurance against idiosyncratic wage shocks to quantify risk sharing. Closed-form solutions are obtained for equilibrium allocations and for moments of the joint distribution of consumption, hours, and wages. We prove identification and demonstrate how labor supply data are informative about risk sharing. The model, estimated with US data over the period 1967-2006, implies that (i) 39 percent of permanent wage shocks pass through to consumption; (ii ) the share of wage risk insured increased until the early 1980s; and (iii) preference heterogeneity is important in accounting for observed dispersion in consumption and hours.
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U2 - 10.1257/aer.104.7.2075
DO - 10.1257/aer.104.7.2075
M3 - Article
AN - SCOPUS:84904430754
SN - 0002-8282
VL - 104
SP - 2075
EP - 2126
JO - American Economic Review
JF - American Economic Review
IS - 7
ER -