Consumption Commitments and Preferences for Risk
43 Pages Posted: 19 May 2004
There are 2 versions of this paper
Consumption Commitments and Preferences for Risk
Consumption, Commitmants and Preferences for Risk
Date Written: May 18, 2004
Abstract
We examine an economy in which the cost of consuming some goods can be reduced by making commitments to consumption levels independent of the state. For example, it is cheaper to produce housing services via owner-occupied than rented housing, but the transactions costs associated with the former prompt relatively inflexible housing consumption paths. We show that consumption commitments can cause risk-neutral consumers to care about risk, creating incentives to both insure risks and bunch uninsured risks together. For example, workers may prefer to avoid wage risk while bearing an unemployment risk that is concentrated in as few states as possible.
Keywords: Unemployment, risk sharing, income distribution
JEL Classification: D21, D31, D81, J34
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Consumption Commitments and Risk Preferences
By Raj Chetty and Adam Szeidl
-
Consumption Commitments, Unemployment Durations, and Local Risk Aversion
By Raj Chetty
-
Commitment, Risk, and Consumption: Do Birds of a Feather Have Bigger Nests?
By Stephen H. Shore and Todd M. Sinai
-
Commitment, Risk, and Consumption: Do Birds of a Feather Have Bigger Nests?
By Stephen H. Shore and Todd M. Sinai
-
The Effect of Housing on Portfolio Choice
By Raj Chetty and Adam Szeidl
-
Consumption, Commitmants and Preferences for Risk
By Andrew Postlewaite, Larry Samuelson, ...
-
Optimal Portfolio Choice with Predictability in House Prices and Transaction Costs
By Stefano Corradin, Jose L. Fillat, ...
-
Illiquid Housing as Self-Insurance: The Case of Long Term Care
-
Does Home Owning Smooth the Variability of Future Housing Consumption?
By Andrew Paciorek and Todd M. Sinai