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Human Capital Risk, Contract Enforcement, and the Macroeconomy

Tom Krebs (), Moritz Kuhn and Mark Wright ()

No 17714, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a macroeconomic model with physical and human capital, human capital risk, and limited contract enforcement. We show analytically that young (high-return) households are the most exposed to human capital risk and are also the least insured. We document this risk-insurance pattern in data on life-insurance drawn from the Survey of Consumer Finance. A calibrated version of the model can quantitatively account for the life-cycle variation of insurance observed in the US data and implies welfare costs of under-insurance for young households that are equivalent to a 4 percent reduction in lifetime consumption. A policy reform that makes consumer bankruptcy more costly leads to a substantial increase in the volume of credit and insurance.

JEL-codes: D52 E21 E24 J24 (search for similar items in EconPapers)
Date: 2011-12
New Economics Papers: this item is included in nep-cba and nep-dge
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11) Track citations by RSS feed

Published as Tom Krebs & Moritz Kuhn & Mark L. J. Wright, 2015. "Human Capital Risk, Contract Enforcement, and the Macroeconomy," American Economic Review, American Economic Association, vol. 105(11), pages 3223-72, November.

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Related works:
Journal Article: Human Capital Risk, Contract Enforcement, and the Macroeconomy (2015) Downloads
Working Paper: Human Capital Risk, Contract Enforcement, and the Macroeconomy (2015) Downloads
Working Paper: Human Capital Risk, Contract Enforcement, and the Macroeconomy (2015) Downloads
Working Paper: Human Capital Risk, Contract Enforcement, and the Macroeconomy (2014) Downloads
Working Paper: Human Capital Risk, Contract Enforcement, and the Macroeconomy (2012) Downloads
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