Heterogeneity and tests of risk sharing

Sam Schulhofer-Wohl

No 462, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: 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 where 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.

Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (56)

Downloads: (external link)
http://www.minneapolisfed.org/research/sr/sr462.pdf
http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=4729 (application/pdf)

Related works:
Journal Article: 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) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:462

Access Statistics for this paper

More papers in Staff Report from Federal Reserve Bank of Minneapolis Contact information at EDIRC.
Bibliographic data for series maintained by Kate Hansel ().