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Human Capital Risk, Contract Enforcement, and the Macroeconomy

Author Info

Listed author(s):
  • Moritz Kuhn

    (University of Bonn)

  • Mark Wright

    (UCLA)

  • Tom Krebs

    (University of Mannheim)

Abstract

We develop a macroeconomic model with physical and human capital, human capital risk, and limited contract enforcement. We show analytically that young (high-return) households are the most exposed to human capital risk and are also the least insured. We document this risk-insurance pattern in data on life-insurance drawn from the Survey of Consumer Finance. A calibrated version of the model can quantitatively account for the life-cycle variation of insurance observed in the US data and implies welfare costs of under-insurance for young households that are equivalent to a 4 percent reduction in lifetime consumption. A policy reform that makes consumer bankruptcy more costly leads to a substantial increase in the volume of credit and insurance.

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File URL: https://economicdynamics.org/meetpapers/2012/paper_159.pdf
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Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 159.

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Date of creation: 2012
Handle: RePEc:red:sed012:159
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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Find related papers by JEL classification:
  • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
  • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
  • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
  • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
  • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Human Capital Risk, Contract Enforcement, and the Macroeconomy
    by Christian Zimmermann in NEP-DGE blog on 2015-08-26 13:13:08
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Cited by:

  1. Sebastian Koehne & Moritz Kuhn, 2015. "Should unemployment insurance be asset-tested?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(3), pages 575-592, July.
  2. repec:red:ecodyn:v:18:y:2017:i:1:agenda is not listed on IDEAS
  3. Mark Huggett & Greg Kaplan, 2016. "How Large is the Stock Component of Human Capital?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 22, pages 21-51, October.
  4. Krebs, Tom & Kuhn, Moritz & Wright, Mark L. J., 2016. "Insurance in Human Capital Models with Limited Enforcement," IZA Discussion Papers 9948, Institute for the Study of Labor (IZA).
  5. Krebs, Tom & Scheffel, Martin, 2016. "Quantifizierung der gesamtwirtschaftlichen Effekte ausgewählter Reformvorschläge der Studie "Reforms, Investment and Growth: An Agenda for France, Germany and Europe"," Working Papers 16-04, University of Mannheim, Department of Economics.
  6. Krueger, Dirk & Mitman, Kurt & Perri, Fabrizio, 2016. "Macroeconomics and Household Heterogeneity," CEPR Discussion Papers 11308, C.E.P.R. Discussion Papers.
  7. Tom Krebs & Moritz Kuhn & Mark Wright, 2017. "Under-Insurance in Human Capital Models with Limited Enforcement," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 25, pages 121-150, April.
  8. Hanming Fang, 2014. "Insurance Markets for the Elderly," NBER Working Papers 20549, National Bureau of Economic Research, Inc.

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