Household Risk Management / Adriano A. Rampini, S. Viswanathan.

Format:

Book

Author/Creator:

Rampini, Adriano A.

Contributor:

National Bureau of Economic Research.

Viswanathan, S.

Series:

Working Paper Series (National Bureau of Economic Research) no. w22293.

NBER working paper series no. w22293

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2016.

Summary:

Households' insurance against shocks to income and asset values (that is, household risk management) is limited, especially for poor households. We argue that a trade-off between intertemporal financing needs and insurance across states explains this basic insurance pattern. In a model with limited enforcement, we show that household risk management is increasing in household net worth and income, incomplete, and precautionary. These results hold in economies with income risk, durable goods and collateral constraints, and durable goods price risk, under quite general conditions and, remarkably, risk aversion is sufficient and prudence is not required. In equilibrium, collateral scarcity lowers the interest rate, reduces insurance, and increases inequality.

Notes:

Print version record

May 2016.