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On the role of market insurance in a dynamic model

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Author Info
Helge Braun ()
Winfried Koeniger ()

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Abstract

Durables like cars or houses are a substantial component in the balance sheets of households. These durables are exposed to risk and can be insured in the market. We build a dynamic model in which agents have three possibilities to cope with the risk exposure of the durable stock: (i) purchase of market insurance, (ii) buffer-stock saving of the riskless asset or (iii) adjustment of the durable stock. We calibrate our model to the US economy and find a small role for market insurance. Copyright The Geneva Association 2007

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File URL: http://hdl.handle.net/10.1007/s10713-007-0001-5
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Publisher Info
Article provided by Springer in its journal THE GENEVA RISK AND INSURANCE REVIEW.

Volume (Year): 32 (2007)
Issue (Month): 1 (June)
Pages: 61-90
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Handle: RePEc:kap:geneva:v:32:y:2007:i:1:p:61-90

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Web page: http://www.springerlink.com/link.asp?id=102897

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Related research
Keywords: Consumption; Durables; Uncertainty; Insurance; Buffer-stock wealth; D81; E21; G22;

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  2. Angus Deaton & Guy Laroque, 1990. "On The Behavior of Commodity Prices," NBER Working Papers 3439, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Giuseppe Bertola, 2005. "Uncertainty and Consumer Durables Adjustment," Review of Economic Studies, Blackwell Publishing, vol. 72(4), pages 973-1007, October. [Downloadable!] (restricted)
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  4. Smith, Eric & Wright, Randall, 1992. "Why Is Automobile Insurance in Philadelphia So Damn Expensive?," American Economic Review, American Economic Association, vol. 82(4), pages 756-72, September. [Downloadable!] (restricted)
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  5. Alessi, R & Michael Devereux & Guglielmo Weber, 1993. "Intertemporal consumption, durables and liquidity constraints: a cohort analysis," IFS Working Papers W93/07, Institute for Fiscal Studies.
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  6. Deaton, Angus, 1991. "Saving and Liquidity Constraints," Econometrica, Econometric Society, vol. 59(5), pages 1221-48, September. [Downloadable!] (restricted)
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  7. S. Rao Aiyagari, 1993. "Uninsured idiosyncratic risk and aggregate saving," Working Papers 502, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  8. Eeckhoudt, Louis & Meyer, Jack & Ormiston, Michael B, 1997. "The Interaction between the Demands for Insurance and Insurable Assets," Journal of Risk and Uncertainty, Springer, vol. 14(1), pages 25-39, January. [Downloadable!] (restricted)
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  12. Raviv, Artur, 1979. "The Design of an Optimal Insurance Policy," American Economic Review, American Economic Association, vol. 69(1), pages 84-96, March. [Downloadable!] (restricted)
  13. Joseph Gruber & Robert Martin, 2003. "Precautionary savings and the wealth distribution with illiquid durables," International Finance Discussion Papers 773, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  14. Christopher D Carroll, 1990. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," Economics Working Paper Archive 371, The Johns Hopkins University,Department of Economics, revised Aug 1996.
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  15. Christopher D. Carroll & Miles S. Kimball, 2001. "Liquidity Constraints and Precautionary Saving," NBER Working Papers 8496, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  16. Michael Haliassos and Alexander Michaelides, 2001. "Calibration and Computation of Household Portfolio Models," Computing in Economics and Finance 2001 194, Society for Computational Economics. [Downloadable!]
  17. Schmitt-Grohé, Stephanie & Uribe, Martín, 2001. "Solving Dynamic General Equilibrium Models Using a Second-Order Approximation to the Policy Function," CEPR Discussion Papers 2963, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  18. Michael Waldman, 2003. "Durable Goods Theory for Real World Markets," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 131-154, Winter. [Downloadable!] (restricted)
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  1. Brunette, Marielle & Couture, Stéphane & Langlais, Eric, 2007. "Hedging Strategies in Forest Management," MPRA Paper 5228, University Library of Munich, Germany. [Downloadable!]
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