Consumption, savings, and insurance with incomplete markets

Harenberg, Daniel

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URN: urn:nbn:de:bsz:180-madoc-318525
Document Type: Doctoral dissertation
Year of publication: 2012
Place of publication: Mannheim
University: Universität Mannheim
Evaluator: Krebs, Tom
Date of oral examination: 19 June 2012
Publication language: English
Institution: Außerfakultäre Einrichtungen > Graduate School of Economic and Social Sciences - CDSE (Economics)
School of Law and Economics > Makroökonomik u. Wirtschaftspolitik (Krebs 2006-)
Subject: 330 Economics
Subject headings (SWD): Ersparnis , Rentenversicherung , Preistheorie , Insolvenz
Keywords (English): Incomplete Markets , Social Security , Asset Pricing , Consumer Default
Abstract: One way to react to missing insurance markets is to build up private savings. This way, households can use their financial wealth to partially compensate a drop in income, be it due to job loss, negative capital returns, or retirement. In chapter 2, I evaluate how efficient this type of self-insurance is in various settings. Chapter 3 looks at a specific government policy, namely an expansion of the social security system, and asks how much households value this form of mandatory insurance. Finally, in chapter 4, households have an additional insurance channel, in that they can default on their loans when they face hard times. All three chapters have in common that households face idiosyncratic, i.e. individual-specific, labor income risk, and that insurance markets against this risk are missing by assumption. Households can self-insure with a bond and have a finite lifetime. In addition, chapters 2 and 3 also feature aggregate , i.e. economy-wide, business-cycle risk. Markets for aggregate risk are incomplete, too, but now agents can self-insure by investing in stock in addition to bonds. Another difference to chapter 4 is that the model in these two chapters contains a production sector. In the remainder of this introduction, I discuss the three chapters and their findings in more detail.

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