EconPapers    
Economics at your fingertips  
 

Debt default and the insurance of labor income risks

Kartik Athreya (), Xuan Tam () and Eric Young ()

Economic Quarterly, 2012, issue 4Q, 255-307

Abstract: In this article, we evaluate in detail the role of debt forgiveness in altering the transmission of labor income risk in the absence of catastrophic out-of-pocket "expense shocks" used in the literature on consumer default. The experiments we present can be thought of as: "If we insure the out-of-pocket expenses that constitute expenditure shocks, is there still a role of debt relief as a form of insurance against 'pure labor income risk'?" We address this question by studying a range of specifications for households' attitudes toward the intra- and intertemporal properties of income risk alone. Our main finding is that, absent expense shocks, the ability to default very generally hinders the ability of households to protect themselves against labor income risk. Our findings suggest the scope of shocks that debt forgiveness is providing insurance against may be limited, perhaps principally to relatively catastrophic outcomes.

Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed

Downloads: (external link)
http://www.richmondfed.org/publications/research/e ... /2012/q4/athreya.cfm (text/html)
http://www.richmondfed.org/publications/research/e ... 2/q4/pdf/athreya.pdf (application/pdf)

Related works:
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: https://EconPapers.repec.org/RePEc:fip:fedreq:y:2012:i:4q:p:255-307:n:v.98no.4

Ordering information: This journal article can be ordered from
http://www.richmondfed.org/publications/

Access Statistics for this article

More articles in Economic Quarterly from Federal Reserve Bank of Richmond Contact information at EDIRC.
Bibliographic data for series maintained by Christian Pascasio ().

 
Page updated 2019-08-15
Handle: RePEc:fip:fedreq:y:2012:i:4q:p:255-307:n:v.98no.4