Household Risk Management

Adriano Rampini and S Viswanathan (viswanat@duke.edu)

No 22293, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: D14 D91 E21 G22 I13 (search for similar items in EconPapers)
Date: 2016-05
New Economics Papers: this item is included in nep-dge, nep-ias and nep-mac
Note: CF EFG EH
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Working Paper: Household risk management (2013)
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