A Test of Consumption Insurance
AbstractAre individuals effectively insured against idiosyncratic shocks to income or wealth by either formal or informal mechanisms? This paper shows that under perfect insurance, marginal utility should grow at the same rate for all consumers, and that the distribution of measured consumption growth rates should be independent of variables that are exogenous to the individual consumer when we allow for measurement error in consumption and for variation in preferences. This proposition is tested by cross sectional regressions of individual consumption growth on a variety of variables that should not be correlated with it under perfect insurance, including illness, being fired from a job, etc.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2642.
Date of creation: Jul 1988
Date of revision:
Publication status: published as "A Simple Test of Consumption Insurance." From Journal of Political Economy, Vol. 99, No. 5, pp. 957-976, (October 1991).
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