Consumption, Commitmants and Preferences for Risk
AbstractWe examine an economy in which the cost of consuming some goods can be reduced by making commitments to consumption levels independent of the state. For example, it is cheaper to produce housing services via owner-occupied than rented housing, but the transactions costs associated with the former prompt relatively inflexible housing consumption paths. We show that consumption commitments can cause risk-neutral consumers to care about risk, creating incentives to both insure risks and bunch uninsured risks together. For example, workers may prefer to avoid wage risk while bearing an unemployment risk that is concentrated in as few states as possible.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10527.
Date of creation: May 2004
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Other versions of this item:
- Andrew Postlewaite & Larry Samuelson & Dan Silverman, 2001. "Consumption Commitments and Preferences for Risk," PIER Working Paper Archive 04-021, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 18 May 2004.
- Larry Samuelson & Andrew Postlewaite, 2004. "Consumption Commitments and Preferences for Risk," Econometric Society 2004 North American Winter Meetings 162, Econometric Society.
- Postlewaite,A. & Samuelson,L. & Silverman,D., 2004. "Consumption commitments and preferences for risk," Working papers 15, Wisconsin Madison - Social Systems.
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-06-07 (All new papers)
- NEP-MIC-2004-06-07 (Microeconomics)
- NEP-REG-2004-06-07 (Regulation)
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