Human Capital Risk, Contract Enforcement, and the Macroeconomy / Tom Krebs, Moritz Kuhn, Mark L. J. Wright.

Format:

Book

Author/Creator:

Krebs, Tom.

Contributor:

National Bureau of Economic Research.

Kuhn, Moritz.

Wright, Mark L. J.

Series:

Working Paper Series (National Bureau of Economic Research) no. w17714.

NBER working paper series no. w17714

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2011.

Summary:

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.

Notes:

Print version record

December 2011.