Human Capital Risk, Contract Enforcement, and the Macroeconomy

Moritz Kuhn, Mark Wright and Tom Krebs

No 159, 2012 Meeting Papers from Society for Economic Dynamics

Abstract: We develop a macroeconomic model with physical and human capital, human capital risk, and limited contract enforcement. We show analytically that young (high-return) households are the most exposed to human capital risk and are also the least insured. We document this risk-insurance pattern in data on life-insurance drawn from the Survey of Consumer Finance. A calibrated version of the model can quantitatively account for the life-cycle variation of insurance observed in the US data and implies welfare costs of under-insurance for young households that are equivalent to a 4 percent reduction in lifetime consumption. A policy reform that makes consumer bankruptcy more costly leads to a substantial increase in the volume of credit and insurance.

Date: 2012
New Economics Papers: this item is included in nep-dge
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Related works:
Journal Article: Human Capital Risk, Contract Enforcement, and the Macroeconomy (2015)
Working Paper: Human Capital Risk, Contract Enforcement, and the Macroeconomy (2015)
Working Paper: Human Capital Risk, Contract Enforcement, and the Macroeconomy (2015)
Working Paper: Human Capital Risk, Contract Enforcement, and the Macroeconomy (2014)
Working Paper: Human Capital Risk, Contract Enforcement, and the Macroeconomy (2011)
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