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

  • Hamish Low

    (University of Cambridge)

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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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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  1. Pierre-Olivier Gourinchas & Jonathan A. Parker, 2002. "Consumption Over the Life Cycle," Econometrica, Econometric Society, vol. 70(1), pages 47-89, January.
  2. Blundell, Richard & Meghir, Costas & Neves, Pedro, 1993. "Labour supply and intertemporal substitution," Journal of Econometrics, Elsevier, vol. 59(1-2), pages 137-160, September.
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  15. Chris Carroll & Lawrence H. Summers, 1989. "Consumption Growth Parallels Income Growth: Some New Evidence," NBER Working Papers 3090, National Bureau of Economic Research, Inc.
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