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

Author

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  • 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)

Suggested Citation

  • Hamish Low, 2005. "Self-Insurance in a Life-Cycle Model of Labor Supply and Savings," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(4), pages 945-975, October.
  • Handle: RePEc:red:issued:v:8:y:2005:i:4:p:945-975
    DOI: 10.1016/j.red.2005.03.002
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    References listed on IDEAS

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    More about this item

    Keywords

    precautionary saving; life-cycle labor supply;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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