Consumption Partial Insurance in the Presence of Tail Income Risk

Anisha Ghosh and Alexandros Theloudis

Papers from arXiv.org

Abstract: We measure consumption insurance against income shocks accounting for high-order moments of the income distribution. We derive a nonlinear consumption function, where the extent of insurance varies with the shocks' sign and magnitude. Using PSID data, we estimate an asymmetric pass-through of bad versus good permanent shocks - 17% of a 3 sigma negative shock transmits to consumption versus 9% of an equal-sized positive shock - with greater pass-through as shocks worsen. Households would sacrifice over 1/8 of lifetime consumption to eliminate tail income risk. Our results align with survey responses to hypothetical events and suggest that tail risk matters substantially for consumption.

Date: 2023-06, Revised 2025-03
New Economics Papers: this item is included in nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://arxiv.org/pdf/2306.13208 Latest version (application/pdf)

Related works:
Working Paper: Consumption Partial Insurance in the Presence of Tail Income Risk (2023)
Working Paper: Consumption Partial Insurance in the Presence of Tail Income Risk (2023)
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:arx:papers:2306.13208

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().