Consumption commitments and preferences for risk
We 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.
(This abstract was borrowed from another version of this item.)
|Date of creation:||2004|
|Contact details of provider:|| Postal: UNIVERSITY OF WISCONSIN MADISON, SOCIAL SYSTEMS RESEARCH INSTITUTE(S.S.R.I.), MADISON WISCONSIN 53706 U.S.A.|
References listed on IDEAS
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- Adam Szeidl & Raj Chetty, 2004. "Consumption Commitments and Asset Prices," 2004 Meeting Papers 354, Society for Economic Dynamics.
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"Sticky Consumption and Rigid Wages,"
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- Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
- Martin Neil Baily, 1974. "Wages and Employment under Uncertain Demand," Review of Economic Studies, Oxford University Press, vol. 41(1), pages 37-50.
- George A. Akerlof & Hajime Miyazaki, 1980. "The Implicit Contract Theory of Unemployment meets the Wage Bill Argument," Review of Economic Studies, Oxford University Press, vol. 47(2), pages 321-338.
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