Consumption Commitments 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 04-021.
Length: 43 pages
Date of creation: 01 Dec 2001
Date of revision: 18 May 2004
Unemployment; risk sharing; income distribution;
Other versions of this item:
- 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.
- Andrew Postlewaite & Larry Samuelson & Dan Silverman, 2004. "Consumption, Commitmants and Preferences for Risk," NBER Working Papers 10527, National Bureau of Economic Research, Inc.
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Baily, Martin Neil, 1974. "Wages and Employment under Uncertain Demand," Review of Economic Studies, Wiley Blackwell, vol. 41(1), pages 37-50, January.
- Ellingsen, Tore & Holden, Steinar, 1995.
"Sticky Consumption and Rigid Wages,"
Working Paper Series in Economics and Finance
62, Stockholm School of Economics.
- Adam Szeidl & Raj Chetty, 2004. "Consumption Commitments and Asset Prices," 2004 Meeting Papers 354, Society for Economic Dynamics.
- Akerlof, George A & Miyazaki, Hajime, 1980. "The Implicit Contract Theory of Unemployment Meets the Wage Bill Argument," Review of Economic Studies, Wiley Blackwell, vol. 47(2), pages 321-38, January.
- Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
- Lucas, Robert E, Jr & Rapping, Leonard A, 1969. "Real Wages, Employment, and Inflation," Journal of Political Economy, University of Chicago Press, vol. 77(5), pages 721-54, Sept./Oct.
- Kihlstrom, Richard E & Mirman, Leonard J, 1981. "Constant, Increasing and Decreasing Risk Aversion with Many Commodities," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 271-80, April.
- Steinar Holden & Fredrik Wulfsberg, 2007.
"Are real wages rigid downwards?,"
2007/01, Norges Bank.
- Steinar Holden & Fredrik Wulfsberg, 2007. "How strong is the case for downward real wage rigidity?," Working Papers 07-6, Federal Reserve Bank of Boston.
- Stephen H. Shore & Todd Sinai, 2005.
"Commitment, Risk, and Consumption: Do Birds of a Feather Have Bigger Nests?,"
NBER Working Papers
11588, National Bureau of Economic Research, Inc.
- Stephen H. Shore & Todd Sinai, 2010. "Commitment, Risk, and Consumption: Do Birds of a Feather Have Bigger Nests?," The Review of Economics and Statistics, MIT Press, vol. 92(2), pages 408-424, May.
- Raj Chetty & Adam Szeidl, 2006.
"Consumption Commitments and Risk Preferences,"
NBER Working Papers
12467, National Bureau of Economic Research, Inc.
- Holden, Steinar & Wulfsberg, Fredrik, 2009. "How strong is the macroeconomic case for downward real wage rigidity?," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 605-615, May.
- Adam Szeidl & Raj Chetty, 2005.
"Consumption Commitments: Neoclassical Foundations for Habit Formation,"
2005 Meeting Papers
122, Society for Economic Dynamics.
- Raj Chetty & Adam Szeidl, 2004. "Consumption Commitments: Neoclassical Foundations for Habit Formation," NBER Working Papers 10970, National Bureau of Economic Research, Inc.
- Drew Fudenberg & David K. Levine, 2011.
"Risk, Delay, and Convex Self-Control Costs,"
American Economic Journal: Microeconomics,
American Economic Association, vol. 3(3), pages 34-68, August.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dolly Guarini).
If references are entirely missing, you can add them using this form.