Consumption and Labor Supply with Partial Insurance: An Analytical Framework

Published in

NBER Working Paper No. 15257, 2009

Abstract

This paper studies consumption and labor supply in a model where agents have partial insurance and face risk and initial heterogeneity in wages and preferences. Equilibrium allocations and variances and covariances of wages, hours and consumption are solved for analytically. We prove that all parameters of the structural model are identified given panel data on wages and hours, and cross-sectional data on consumption. The model is estimated on US data. Second moments involving hours and consumption show that the rise in wage dispersion in the 1970s was effectively insured by households, while the rise in the 1980s was not.

By Jonathan Heathcote, Kjetil Storesletten and Giovanni L. Violante
Published Mar. 23, 2015 11:20 AM - Last modified Oct. 6, 2020 10:59 AM