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Self-Insurance in a Life-Cycle Model of Labor Supply and Savings

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Author Info

  • Hamish Low

    (University of Cambridge)

Abstract

This paper analyses the incentives to work and to save over the life-cycle in the presence of incomplete markets. In a calibrated, partial equilibrium model, flexibility in hours worked changes asset age-profiles: borrowing when young is greater and saving when middle-aged is greater than when labor supply is fixed. Uncertainty causes individuals to work longer hours and to consume less when young. With flexibility over hours, accumulating precautionary assets incurs less of a utility cost and so the level of saving is greater. Further, allowing for flexibility and uncertainty means simulated hours of work and consumption more closely match the age profiles in the data. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2005.03.002
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 8 (2005)
Issue (Month): 4 (October)
Pages: 945-975

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Handle: RePEc:red:issued:v:8:y:2005:i:4:p:945-975

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Related research

Keywords: precautionary saving; life-cycle labor supply;

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References

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  14. Cagetti, Marco, 2003. "Wealth Accumulation over the Life Cycle and Precautionary Savings," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(3), pages 339-53, July.
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  17. Huggett, Mark & Ospina, Sandra, 2001. "Aggregate precautionary savings: when is the third derivative irrelevant?," Journal of Monetary Economics, Elsevier, vol. 48(2), pages 373-396, October.
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