On Testing for Full Insurance using Consumer Expenditure Survey Data

Nelson, Julie A.

doi:10.1086/261937

Cited by 98 publications

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“…In terms of the total consumption, the sensitivity to household income (β 2 ) is fairly similar between the two countries. While it is 0.06 in our case (see Table 4), those based on US data indicate that the sensitivity is 0.04 in Mace [1991], 0.05 in Cochrane [1991], and 0.05 in Nelson [1994]. Given that our sample size is much larger than theirs, our estimation obtains more precise estimates for the sensitivity.…”

Section: Estimation Results the First Panel (Panel A) Ofcontrasting

confidence: 57%

“…Among a few empirical studies on consumption behavior using panel data sets on Japanese households, Hayashi [1985a, 1 Among the empirical studies using US micro household data, empirical results are mixed. Using the same data source (Consumer Expenditure Survey Data), for example, Mace [1991] supported the full insurance hypothesis, while Nelson [1994] rejected it, based on more accurate measurements of consumption and income.…”

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confidence: 98%

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A Test of the Full Insurance Hypothesis: The Case of Japan

Kohara

Ohtake

Saito

2002

Journal of the Japanese and International Economies

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Abstract. Exploiting the panel data structure of the Family Income and Expenditure Survey, compiled from 1989 to 1997 by the Japanese Bureau of Statistics, this paper explores how effectively idiosyncratic shocks are shared among consumers in Japan. Tests are conducted for the total consumption, together with each category of consumption expenditures. Exploring possible theoretical interpretations of estimated parameters, this paper shows that the full insurance hypothesis is rejected statistically, but that a large fraction of idiosyncratic shocks are still insured in markets or other mechanisms. It also points out that the extent of risk-sharing among households in Japan is fairly similar to that in the US.

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Section: Estimation Results the First Panel (Panel A) Ofcontrasting

confidence: 57%

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confidence: 98%

A Test of the Full Insurance Hypothesis: The Case of Japan

Kohara

Ohtake

Saito

2002

Journal of the Japanese and International Economies

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“…Townsend (1994) reports evidence against the consumption insurance hypothesis using household-level panel data for three Indian villages. Mace (199i) finds only mild evidence against the consumption insurance hypothesis using household-level data from the CEX, but Attanasio and Weber (1992) and Nelson (1994) show that careful treatment of measurement issues leads to sharp rejections of the consumption insurance hypothesis in her data. In other related work, Altonji et al (1992) reject the hypothesis of complete risk sharing among extended family members, and Lewis (1993) investigates whether the pattern of aggregate consumption growth rates among countries conforms to the full insurance hypothesis.…”

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confidence: 98%

Relative Wage Movements and the Distribution of Consumption

Attanasio¹,

Davis

1994

130

143

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We analyze how relative wage movements across birth cohorts and education groups during the 1980s affected the distribution of household consumption. The analysis integrates the labor economics literature on time variation in the wage structure with the consumption insurance literature. In contrast to previous tests of consumption insurance, we examine the impact of systematic. publicly observable shifts in the hourly wage structure. To circumvent the extreme scarcity of longitudinal data with high quality information on both consumption and labor market outcomes, we draw upon the best available cross-sectional data sources to construct synthetic panel data on consumption, labor supply and wages.We find that low-frequency movements in the cohort-education structure of pre-tax hourly wages drove large changes in the distribution of household consumption. The results constitute a spectacular failure of the consumption insurance hypothesis, and one that is not explained by existing theories of informationally constrained optimal consumption allocations. We also develop a procedure for assessing the welfare consequences of deviations from full consumption insurance and, in particular, from the failure to insulate the consumption distribution from relative wage shifts across cohort-education groups. For a coefficient of relative risk aversion equal to two, fully insulating households from group-specific endowment variation would raise welfare by an amount equivaltnt to a uniform 2.7% consumption increase.

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“…We assume that in the two agent economy incomes are perfectly negatively correlated 33 , so that if agent 1 has income y l , agent 2 has income y h and vice versa. 34 Consequently, as in the continuum economy, average income in the economy is nonstochastic and equal to 1.…”

Section: Qualitative Features Of the Efficient Allocationmentioning

confidence: 99%

Public versus Private Risk Sharing

Krueger

Perri

2009

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seminar participants at numerous institutions for helpful comments and suggestions. All remaining errors are our own. A previous version of this paper has circulated under the title "Risk Sharing: PrivateInsurance Markets or Redistributive Taxation? The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.© 2009 by Dirk Krueger and Fabrizio Perri. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. ABSTRACTCan public insurance through redistributive income taxation improve the allocation of risk in an economy in which private risk sharing is limited? The answer depends crucially on the fundamental friction that limits private risk sharing in the first place. If risk sharing is incomplete because some insurance markets are missing for model-exogenous reasons (as in Bewley, 1986 andAiyagari, 1994) publicly provided risk sharing via a tax system generally improves on the allocation of risk. If instead private insurance markets exist but their use is limited by the absence of complete enforcement (as in Levine, 1993 and then the provision of public insurance can crowd out private insurance to such an extent that total consumption insurance is reduced. By reducing income risk the tax system increases the value of being excluded from private insurance markets and hence weakens the enforcement mechanism of these contracts. In this paper we theoretically characterize and numerically compute equilibria in an economy with limited enforcement and a continuum of agents facing realistic income risk and tax systems with various degrees of risk reduction (progressivity). We find that the crowding-out effect of public insurance on private insurance in the limited enforcement model can be quantitatively important, as is the positive insurance effect of taxation in the Bewley model.

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On Testing for Full Insurance using Consumer Expenditure Survey Data

Cited by 98 publications

References 0 publications

A Test of the Full Insurance Hypothesis: The Case of Japan

A Test of the Full Insurance Hypothesis: The Case of Japan

Relative Wage Movements and the Distribution of Consumption

Public versus Private Risk Sharing

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