Heterogeneity and Tests of Risk Sharing
Journal of Political Economy, 2011, vol. 119, issue 5, 925 - 958
How well do people share risk? Standard risk-sharing regressions assume that any variation in households' risk preferences is uncorrelated with variation in the cyclicality of income. I combine administrative and survey data to show that this assumption is questionable: Risk-tolerant workers hold jobs in which earnings carry more aggregate risk. The correlation makes risk-sharing regressions in the previous literature too pessimistic. I derive techniques that eliminate the bias, apply them to U.S. data, and find that the effect of idiosyncratic income shocks on consumption is practically small and statistically difficult to distinguish from zero.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31) Track citations by RSS feed
Downloads: (external link)
Access to the online full text or PDF requires a subscription.
Working Paper: Heterogeneity and tests of risk sharing (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ucp:jpolec:doi:10.1086/662720
Access Statistics for this article
More articles in Journal of Political Economy from University of Chicago Press
Bibliographic data for series maintained by Journals Division ().