Human capital risk, contract enforcement, and the macro economy

Description

"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"--National Bureau of Economic Research web site.

Subjects

Series Statement

• NBER working paper series -- working paper 17714
• Working paper series (National Bureau of Economic Research : Online) -- working paper no. 17714.

Links

• http://www.nber.org/papers/w17714