Consumption and Labor Supply with Partial Insurance: An Analytical Framework

Jonathan Heathcote (), Kjetil Storesletten () and Giovanni L. Violante

No 15257, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E21 J22 J31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-dge, nep-ias, nep-lab, nep-mac and nep-mic
Date: 2009-08
Note: EFG LS

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Related works:
Working Paper: Consumption and Labour Supply with Partial Insurance: An Analytical Framework (2007)
Working Paper: Consumption and labor supply with partial insurance: an analytical framework (2009)
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