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 that do not vary across states. For example, moral hazard and matching considerations may make it cheaper to produce housing services via owner-occupied than rented housing, but the transactions costs associated with the former may compel consumers to adopt a realtively inflexible housing consumptin plan. We show that consumption commitments can cause risk-neutral consumers to care a great deal about risk, creating an incentive to insure risks and to bunch uninsured risks together. As a result, workers may preger to avoid wage risk while bearing an unemployment risk that is concentrated in as few states as possible. The interaction between consumptin and labor markets may give rise to multiple equilibria. The basic predictions of the model are compared with corresponding moments of US data on layoff risk and housing consumption.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||11 Aug 2004|
|Date of revision:|
|Contact details of provider:|| Phone: 1 212 998 3820|
Fax: 1 212 995 4487
Web page: http://www.econometricsociety.org/pastmeetings.asp
More information through EDIRC
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.:
- Ellingsen, T. & Holden, S., 1995.
"Sticky Consumption and Rigid Wages,"
21/1995, Oslo University, Department of Economics.
- Ellingsen, Tore & Holden, Steinar, 1995. "Sticky Consumption and Rigid Wages," SSE/EFI Working Paper Series in Economics and Finance 62, Stockholm School of Economics.
- 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.
- Richard E. Kihlstrom & Leonard J. Mirman, 1981. "Constant, Increasing and Decreasing Risk Aversion with Many Commodities," Review of Economic Studies, Oxford University Press, vol. 48(2), pages 271-280.
- Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
- Adam Szeidl & Raj Chetty, 2004. "Consumption Commitments and Asset Prices," 2004 Meeting Papers 354, Society for Economic Dynamics.
- 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.
When requesting a correction, please mention this item's handle: RePEc:ecm:nawm04:162. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum)
If references are entirely missing, you can add them using this form.