Insurance Within the Firm

Luigi Guiso (), Luigi Pistaferri () and Fabiano Schivardi ()

No 2793, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The full insurance hypothesis states that shocks to the firm's performance do not affect workers' compensation. In principal-agent models with moral hazard, firms trade off insurance and incentives to induce workers to supply the optimal level of effort. We use a long panel of matched employer-employee data to test the theoretical predictions of principal-agent models of wage determination in a general context where all types of workers, not only CEOs, are present. We allow for both transitory and permanent shocks to firm performance and find that firms are willing to absorb fully transitory fluctuations in productivity but insure workers only partially against permanent shocks. Risk-sharing considerations can account for about 10% of overall earnings variability, the remainder originating in idiosyncratic shocks. Finally, we show that the amount of insurance varies by type of worker and firm in ways that are consistent with principal-agent models but are hard to reconcile with competitive labour market models, with or without frictions.

Keywords: Incentive Contracts; Insurance; Matched Employer-Employees Data (search for similar items in EconPapers)
JEL-codes: C33 D21 J33 J41 (search for similar items in EconPapers)
Date: Written
View citations in EconPapers

Downloads: (external link)
http://www.cepr.org/pubs/dps/DP2793.asp (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Insurance within the Firm (2001)
Working Paper: Insurance within the firm (2002)
Journal Article: Insurance within the Firm (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:cpr:ceprdp:2793

Ordering information: This working paper can be ordered from
http://www.cepr.org/pubs/dps/DP2793.asp

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers
Address: Centre for Economic Policy Research, 53--56 Great Sutton Street, London EC1V 0DG
Series data maintained by ().