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Self-insurance and inequality

Author

Listed:
  • Yann Algan

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Arnaud Chéron

    (GAINS - Groupe d'Analyse des Itinéraires et des Niveaux Salariaux - UM - Le Mans Université)

  • Jean-Olivier Hairault

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • François Langot

    (GAINS - Groupe d'Analyse des Itinéraires et des Niveaux Salariaux - UM - Le Mans Université)

Abstract

Recent works have stressed that precautionary savings can provide a level of insurance against unemployment risks that is comparable to the current unemployment insurance (UI) system in average. This paper reconsiders this result by laying stress on the implied insurance and wealth inequalities in an incomplete market model calibrated on the French labor market. Self-insurance is found to increase the permanent inequality in this set-up, due to the history dependence of consumption in the presence of borrowing constraints. This result is fostered when one turns to transitory inequalities as some unemployed persons can be potentially liquidity constrained at a given period.

Suggested Citation

  • Yann Algan & Arnaud Chéron & Jean-Olivier Hairault & François Langot, 2004. "Self-insurance and inequality," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-03636824, HAL.
    • Handle: RePEc:hal:cesptp:hal-03636824
    DOI: 10.1016/j.econlet.2004.04.018
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