Self-Insurance in a Life-Cycle Model of Labor Supply and Savings

Hamish Low

Review of Economic Dynamics, 2005, vol. 8, issue 4, 945-975

Abstract: This paper analyses the incentives to work and to save over the life-cycle in the presence of incomplete markets. In a calibrated, partial equilibrium model, flexibility in hours worked changes asset age-profiles: borrowing when young is greater and saving when middle-aged is greater than when labor supply is fixed. Uncertainty causes individuals to work longer hours and to consume less when young. With flexibility over hours, accumulating precautionary assets incurs less of a utility cost and so the level of saving is greater. Further, allowing for flexibility and uncertainty means simulated hours of work and consumption more closely match the age profiles in the data. (Copyright: Elsevier)

Keywords: precautionary saving; life-cycle labor supply (search for similar items in EconPapers)
JEL-codes: D91 H31 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (106)

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DOI: 10.1016/j.red.2005.03.002

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