unemployment risk and precautionary wealth evidence from households balance sheets this paper examines precautionary behavior by relating job loss risk to household net worth we use existing best practice and some new strategies to deal with some problematic issues inherent in this literature regarding proxying uncertainty instrumentation and incorporating theoretical restrictions we do not find precautionary variation in the wealth holdings of households with low permanent income but do find precautionary effects for moderate and higher income households when the dependent variable is total net worth these findings are robust to several alternative specifications but we do not find precautionary responses in subaggregates of wealth that exclude home equity

intertemporal labor supply and long term employment contracts the authors compare the implications of a symmetric information contracting model and a dynamic labor supply model for changes in earnings and hours a simple test is whether earnings changes are more variable than hours changes as predicted by the labor supply model or less variable as predicted by the contracting model the authors apply this test to two longitudinal surveys of adult men and find that earnings are somewhat more variable than hours for men who never change employers the estimates suggest that changes in earnings and hours not associated with survey measurement error occur at fixed wage rates copyright 1987 by american economic association

testing the response of consumption to income changes with noisy panel data this paper tests the rational expectations lifecycle model of consumption against i a keynesian model and ii the rational expectations lifecycle model with imperfect capital markets the tests are based upon the relative responsiveness of consumption to income changes that can be predicted from past information and income changes that cannot he predicted the tests allow for measurement error in income the results reject the keynesian model and generally support the lifecycle model but the results are not sufficiently precise to rule out the possibility that some households are liquidity constrained measurement error has a strong influence on the relationship between consumption and income

have filipino households become less prudent abstract throughout the 2000s the average household saving rate in the philippines declined sharply this article explains why households consumption growth has been higher than income growth during this period tracing cohorts shows that saving declined across all demographic groups a test that provides the strength of the precautionary saving motive yields a plausible explanation that households have become financially constrained and less prudent in recent years this article argues that these patterns are best explained by the extended coverage of the social security system particularly to informal sector employees during the 1990s in the philippines

household saving micro theories and micro facts in this survey we review the recent theoretical and empirical literature on household saving and consumption the discussion is structured around a list of motives for saving and how well the standard theory captures these motives we show that almost all of the motives for saving that have been suggested in the informal saving literature can be captured in the standard optimizing model particular attention is given to recent work on the precautionary motive and its implications for saving and consumption behavior we also discuss the behavioral or psychological approach that eschews the use of standard optimization techniques and focuses instead on direct consideration on saving we provide a section on facts who save and how much we then discuss informally the recent decline in the u s saving rate and whether the theory is of much use in understanding this and other changes in aggregate saving rates over time we do not find any convincing explanation for the change in saving rates we also discuss some analyses of saving behavior over the life cycle addressing such questions as whether households save enough for retirement and whether the consumption patterns of older households can be rationalized within a simple life cycle model we also review a great number of studies of the consumption euler equations based on our analysis of the studies cited we conclude that there is still mixed evidence that consumption is excessively sensitive to income we also examine in depth the recent empirical literature on the precautionary motive we conclude that although some households do seem to have a significant precautionary motive at some points in their life cycle this motive is not so strong empirically as some investigators suggest

unemployment insurance and precautionary saving abstract models of precautionary saving imply that households will hold more assets when faced with greater income uncertainty however previous empirical studies of income uncertainty have produced somewhat mixed support for the precautionary saving hypothesis in this paper we note that differences in the state contingent income stream available to workers through the unemployment insurance ui program provides an excellent source of variation for testing the presence of a precautionary savings motive simulations of a stochastic life cycle model suggest that a ui system similar to the type currently in place in the u s can lead to a significant reduction in the assets accumulated by a median worker moreover there is considerable variation in the ui benefit schedules for workers living in different states in the u s which provides an exogenous source of variation for empirically testing the precautionary saving hypothesis we carry out this test using data on expected ui benefit replacement rates and financial assets held by households in the survey of income and program participation our empirical results are consistent with the predictions of the model and suggest that reducing the ui benefit replacement rate by 50 percent would increase gross financial asset holdings by 14 percent or 241 for the average worker we also find empirical evidence that this crowd out effect of ui on household saving is stronger for those facing higher unemployment risk and weaker for older workers both of which are implications from our precautionary saving model

the incidence of medicare abstract the medicare program transfers nearly 300 billion annually from taxpayers to beneficiaries this paper considers the incidence of such transfers in the context of a life cycle model with uncertainty about future health care expenditures we find the distributional consequences of the medicare program are roughly neutral in dollar terms households living in high income neighborhoods pay more in taxes but they also receive more in benefits these dollar flows however ignore the insurance value of the medicare system given the incomplete insurance coverage of lower income elderly households prior to the medicare program the money metric benefits to lower income groups exceed the dollar flows suggesting that medicare redistributes more than a simple accounting exercise would suggest

wealth and volatility we document that in the us over the course of the past century there has been a systematic negative relation between household wealth and business cycle volatility we develop a microfounded dynamic equilibrium model that contains elements of a traditional keynesian framework in which economic uctuations can be driven by sunspot type uctuations in household optimism or pessimism the novel feature is that the scope for equilibrium uctuations due to sunspots depends on the exogenously given value of household wealth when wealth is high consumers demand is not sensitive to unemployment expectations and the economy is robust to condence crisis when wealth is low consumers demand is sensitive to unemployment expectations the economy becomes vulnerable to condence driven uctuations and is in general more volatile in this case there is a potential role for public policies to stabilize demand we conclude by providing micro economic evidence on the importance of wealth in aecting the sensitivity of demand to aggregate conditions we show that during the great recession consumers with low

unemployed but optimistic optimal insurance design with biased beliefs biased perceptions of risks change the perceived value of insurance and the per ceived returns to avoiding these risks i show empirically that unemployed workers overestimate how quickly they will nd work but underestimate the return to their search eorts i analyze the consequences for the optimal design of unemployment insurance with biased beliefs contracts equalizing the marginal smoothing ben e t and the moral hazard cost of insurance are suboptimal social and private insurance diverge a paternalistic social planner corrects the moral hazard cost for the distortion in the insured s eort choice while private insurers focus on the perceived rather than the true smoothing bene ts when unemployed workers are optimistic privatizing unemployment insurance may result in ine ciently low or rapidly decreasing unemployment bene ts

does unemployment insurance crowd out spousal labor supply previous research on unemployment insurance ui has emphasized the program s effect on individual search behavior this state contingent income may also reduce the labor supply of family members during the unemployment spell we investigate this question within the context of wives labor supply responses to their husbands unemployment spells we find strong crowdout of this form of family self insurance our estimates imply that for each dollar of ui receipt wives earn up to 73 cents less the reduction in spousal hours of work is over 40 as large as previous estimates of the effect of ui on search time of husbands

household search and the aggregate labor market we develop a theoretical model with labour market frictions incomplete financial markets and with households which have two members households face unemployment risks but their members adjust their labour supplies to insure against unemployment we use the model to explain the cyclical properties of aggregate employment and participation as in the u s data the model predicts that the participation rate the fraction of individuals that want jobs is not strongly correlated with aggregate economic activity this property is in sharp contrast to the strongly procyclical participation predicted by both neoclassical models and models with search frictions when we assume bachelor households or households with infinitely many members complete markets in the two member household model and in the data primary earners are always in the labour force secondary earners have a mildly countercyclical participation rate and a mildly procyclical employment rate their behaviour insures the household against unemployment risks

saving and liquidity constraints this paper is concerned with the theory of saving when consumers are not permitted to borrow and with the ability of such a theory to account for some of the stylized facts of saving behavior the models presented in the paper seem to account for important aspects of reality that are not explained by traditional life cycle models copyright 1991 by the econometric society

social security and individual welfare precautionary saving borrowing constraints and the payroll tax this paper examines the impact of social security on national saving and individual welfare in the presence of realistic capital market imperfections market failure in the private provision of annuities and restrictions on borrowing against anticipated future wages the introduction of social security increases lifetime welfare and reduces national saving if borrowing restrictions are absent however the increase in individual welfare is reduced and in some cases eliminated when borrowing constraints are taken into consideration the substantial difference suggests the importance of reexamining the proportional payroll tax finance of social security copyright 1987 by american economic association

regional effects of exchange rate fluctuations we exploit differences across u s states exposure to trade to study the effects of changes in the exchange rate on economic activity across states trade weighted exchange rate depreciations are associated with increased state exports reduced state unemployment and higher state hours worked the effects are particularly strong during periods of economic slack a multiregion model with interstate trade and labor flows calibrated to match state level trade data and migration flows replicates the empirical relationship between exchange rates and unemployment the high degree of interstate trade plays an important role in transmitting shocks across states in the first year whereas interstate migration shapes cross sectional patterns in later years we use the model to study the regional effects of tariffs in the united states the model suggests that a 25 chinese import tariff on u s goods would be felt throughout the united states even in states with small direct linkages to china raising unemployment rates by 0 2 to 0 7 percentage points in the short run

an equilibrium analysis of optimal unemployment insurance and taxation a two person two period general equilibrium model with uncertainty about second period labor productivity is developed the model is used to consider potential welfare pareto gains from both a stylized unemployment insurance system and from a negative income tax system welfare gains are possible if individuals are sufficiently homogeneous when both programs are operated simultaneously complete insurance is always feasible but is optimal only if the labor supply curve is negatively sloped

partial insurance and investments in children this article studies the impact of permanent and transitory shocks to income on parental investments in children we use panel data on family income and an index of investments in children from the children of the national longitudinal survey of youth we find that there is partial insurance of parental investments against permanent income shocks but the magnitude of the estimated responses is small we cannot reject the hypothesis of full insurance against temporary shocks another interpretation of our findings is that insurance possibilities are limited but the fact that skill is a non separable function of parental investments over time results in small reactions of these investments to income shocks especially at later ages

bargaining and efficiency in networks abstract we study an infinite horizon game in which pairs of players connected in a network are randomly matched to bargain over a unit surplus players who reach agreement are removed from the network without replacement the global logic of efficient matchings and the local nature of bargaining in combination with the irreversible exit of player pairs following agreements create severe hurdles to the attainment of efficiency in equilibrium for many networks all markov perfect equilibria of the bargaining game are inefficient even as players become patient we investigate how incentives need to be structured in order to achieve efficiency via subgame perfect but non markovian equilibria the analysis extends to an alternative model in which individual players are selected according to some probability distribution and a chosen player can select a neighbor with whom to bargain

the perverse impact of calling for energy conservation abstract in periods of high energy demand utilities frequently issue emergency appeals for conservation over peak hours to reduce brownout risk we estimate the impact of such appeals using high frequency data on actual and forecasted electricity generation pollutant emission measures and real time prices our results suggest a perverse impact while there is no significant reduction in grid stress over superpeak hours such calls lead to increased off peak generation co 2 emissions and price volatility we postulate that consumer attempts at load shifting lead to this result

uncertainty and optimal social security systems this paper examines the annuity aspect of social security within the framework of an overlapping generations model the duration of life is assumed to be uncertain under a fully funded system demand for social security is determined by each generation so as to maximize expected lifetime utility taking into account the welfare of future generations under a pay as you go system with intergenerational transfers demand for retirement benefits by the working population takes into account taxes paid by descendants it is shown that the two modes of finance are equivalent in terms of all real aggregates effects of changes in expected lifetime and in the birth rate are analyzed starting at the optimal level a compulsory balanced increase in social security taxes and benefits is shown to increase short run savings

how important is intra household risk sharing for savings and labor supply abstract while it is recognized that the family is a risk sharing institution little is known about the quantitative effects of this source of insurance on savings and labor supply in this paper we present a model where workers females and males are subject to idiosyncratic employment risk and where capital markets are incomplete a household is formed by a female and a male who decide on consumption savings and labor supplies in a calibrated version of our model we find that intra household risk sharing has its largest impact among wealth poor households while the wealth rich use mainly savings to smooth consumption across unemployment spells wealth poor households rely on spousal labor supply for instance for low wealth households average hours worked by wives of unemployed husbands are 8 higher than those worked by wives of employed husbands this response in wives hours makes up 9 of lost family income we also study consumption losses upon an unemployment spell precautionary savings and the crowding out effects of the public unemployment insurance program on the extent of risk sharing within the household

efficiency and equality in a simple model of efficient unemployment insurance abstract this paper describes the efficient allocation of consumption and work effort in an economy in which workers face idiosyncratic employment risk and considerations of moral hazard prevent full insurance we impose a lower bound on the expected discounted utility that can be assigned to any agent from any date onward and show with this feature added that the efficient unemployment insurance scheme induces an invariant cross sectional distribution of individual entitlements to utility the paper thus provides a simple prototype model suited to the study of the normative question what is the trade off between equality and efficiency in resource allocation journal of economic literature classification numbers d31 d63 d82 j65

unemployment insurance design inducing moving and retraining evidence suggests that unemployed individuals can sometimes aect their job prospects by undertaking a costly action like deciding to move or retrain realistically such an opportunity only arises for some individuals and the iden tity of those may be unobservable ex ante the problem of characterizing con strained optimal unemployment insurance in this case has been neglected in previous literature we construct a model of optimal unemployment insurance where multiple incentive constraints are easily handled the model is used to analyze the case when an incentive constraint involving moving costs must be respected in addition to the standard constraint involving costly unobserv able job search in particular we derive closed form solutions showing that when the moving retraining incentive constraint binds unemployment bene ts should increase over the unemployment spell with an initial period with low bene ts and an increase after this period has expired

the role of unemployment insurance in an economy with liquidity constraints and moral hazard the potential welfare benefits of unemployment insurance along with the optimal replacement ratio are studied using a quantitative dynamic general equilibrium model to provide a role for unemployment insurance agents in our economy face exogenous idiosyncratic employment shocks and are unable to borrow or insure themselves through private markets in the absence of moral hazard replacement ratios as high as 65 are optimal and the welfare benefits of unemployment insurance are quite large however if there is moral hazard and the replacement ratio is not set optimally but is instead set to an empirically plausible value the economy can be much worse off than it would be without unemployment insurance

on testing for full insurance using consumer expenditure survey data in a recent issue of this journal mace 1991 presented empirical evidence in support of the hypothesis that u s households engage in full risk sharing the data used were taken from the u s consumer expenditure survey cex for the years 1980 84 full insurance implies that household level consumption should be perfectly correlated with aggregate consumption but uncorrelated with householdlevel changes in income mace s surprising result was that at least for one functional specification household level income changes whether measured directly by changes in reported income or proxied by employment change dummies seemed to have no statistically significant effect on consumption this comment demonstrates that this result was due to measurement error in key variables

how does future income affect current consumption this paper tests a straightforward implication of the basic life cycle model of consumption that current consumption depends on expected lifetime income the paper projects future income for a panel of households and finds that consumption is closely related to projected current income but unrelated to predictable changes in income however future income uncertainty has an important effect consumers facing greater income uncertainty consume less the results are consistent with buffer stock models of consumption like those of deaton 1991 or carroll 1992a 1992b where precautionary motives greatly reduce the willingness of prudent consumers to consume out of uncertain future income

the incidence of mandated maternity benefits i consider the labor market effects of mandates which raise the costs of employing a demographically identifiable group the efficiency of these policies will be largely dependent on the extent to which their costs are shifted to group specific wages i study several state and federal mandates which stipulated that childbirth be covered comprehensively in health insurance plans raising the relative cost of insuring women of childbearing age i find substantial shifting of the costs of these mandates to the wages of the targeted group correspondingly i find little effect on total labor input for that group jel 118 j32 h51 in an era of tight fiscal budget constraints mandating employer provision of workplace benefits to employees is an attractive means for a government to finance its policy agenda consequently in recent years there has been a growth of interest in mandated benefits as a tool of social policy for example the centerpiece of president bill clinton s health care proposal is mandated employer provision of health insurance and more than 20 states have man

earnings uncertainty and precautionary saving abstract we test for the presence of precautionary saving using a self reported measure of earnings uncertainty drawn from the 1989 italian survey of household income and wealth the effect of uncertainty on wealth accumulation is consistent with the theory of precautionary saving and with decreasing prudence but explains only a small fraction of saving the results cast doubts on the empirical relevance of precautionary saving in response to earnings uncertainty but are not in contrast with the importance of the precautionary motive per se beside earnings uncertainty other risks such as health and mortality may be important determinants of wealth accumulation

business cycles unemployment insurance and the calibration of matching models this paper theoretically and empirically documents a puzzle that arises when an rbc economy with a job matching function is used to model unemployment the standard model can generate sufficiently large cyclical fluctuations in unemployment or a sufficiently small response of unemployment to labor market policies but it cannot do both variable search and separation finite ui benefit duration efficiency wages and capital all fail to resolve this puzzle however either sticky wages or match specific productivity shocks can improve the model s performance by making the firm s flow of surplus more procyclical which makes hiring more procyclical too

the role of labor markets for euro area monetary policy in this paper we explore the role of labor markets for monetary policy in the euro area in a new keynesian model in which labor markets are characterized by search and matching frictions we first investigate to which extent a more flexible labor market would alter the business cycle behavior and the transmission of monetary policy we find that while a lower degree of wage rigidity makes monetary policy more effective i e a monetary policy shock transmits faster onto inflation the importance of other labor market rigidities for the transmission of shocks is rather limited second having estimated the model by bayesian techniques we analyze to which extent labor market shocks such as disturbances in the vacancy posting process shocks to the separation rate and variations in bargaining power are important determinants of business cycle fluctuations our results point primarily towards disturbances in the bargaining process as a significant contributor to inflation and output fluctuations in sum the paper supports current central bank practice which appears to put considerable effort into monitoring euro area wage dynamics and which appears to treat some of the other labor market information as less important for monetary policy

the impact of snap vehicle asset limits on household asset allocation beginning in 2001 states were given the authority to formulate their own rules on how vehicles are counted toward the asset limit in the supplemental nutritional assistance program we exploit differences in timing of the state vehicle asset policy changes to identify their effect on vehicle assets and debts car ownership liquid assets holdings as well as non housing wealth we estimate difference in differences and household fixed effects specifications and find that liberalizing vehicle asset rules increases vehicle assets of households with a high ex ante probability of program participation households also take on more debt to finance their vehicles the increase in car value can be attributed primarily to less educated single parents who already owned a car before the policy change buying more expensive cars

a simple test of consumption insurance are consumers effectively insured against idiosyncratic shocks to income or wealth either by formal institutions such as charities private insurance and government programs or by informal mechanisms such as gifts and loans from relatives friends and neighbors under full insurance consumption growth should be cross sectionally independent of idiosyncratic variables that are exogenous to consumers this proposition is tested by cross sectional regressions of consumption growth on a variety of exogenous variables full insurance is rejected for long illness and involuntary job loss but not for spells of unemployment loss of work due to strike and an involuntary move

middle class without a net savings financial fragility and preferences over social insurance in this article we show that it is crucial to distinguish between liquid and illiquid wealth to understand how voters form preferences toward social insurance many households are financially frag

unemployment insurance and unemployment spells this paper tests the effects of the level and length of unemployment insurance benefits on unemployment durations the paper particularly studies individual behavior during the weeks just prior to when benefits lapse higher unemployment insurance benefits are found to have a strong negative effect on the probability of leaving unemployment however the probability of leaving unemployment rises dramatically just prior to when benefits lapse individual data are used with accurate information of spell durations and the level and length of benefits the semiparametric estimation techniques used in the paper yield more plausible estimates than conventional approaches and provide useful diagnostics copyright 1990 by the econometric society

social insurance and consumption an empirical inquiry the main stated purposes of social insurance programs have been the maintenance of consumption by people suffering from misfortunes and the stabilization of employment despite this most recent research on unemployment insurance ui and old age insurance has focused on secondary labor market effects with only a few studies looking at stabilization and none considering effects on consumption in this study we examine how ui will affect the consumption of recipients for some individuals ui will help remove the constraints on consumption during periods of reduced income that arise from insufficient savings and imperfect capital markets while for others the ui benefits merely augment the entire lifetime consumption stream the model enables us to estimate what fractions of the population fall into these two categories if individuals are also constrained in the allocation of their reduction consumption consumption propensities out of ui will differ from those out of nonrecipients income the model is tested on aggregate time series data covering 41 consumption categories for 1959 1978 ii and on over 14 000 individuals from the 1972 73 consumer expenditure survey in both data sets we find no more than half of ui benefits are consumed as if the recipients consumption were constrained during times of unemployment in both samples spending out of ui benefits is disproportionately on luxuries though ui recipients spend greater shares of their income on necessities the results imply that a large part of social insurance payments does not go to prevent serious imbalances in individuals lifetime consumption profiles this abstract was borrowed from another version of this item

saving response to unemployment of a sibling abstract standard theoretical models of household saving behavior do not typically assume that household perceptions of the world change in response to observed events in light of the potential importance of such perception changes e g after a financial crisis this paper considers the hypothesis that a household s saving rate rises through informal learning after a sibling direct or in law has been unemployed the empirical results in this paper are consistent with the learning hypothesis with coefficients estimated by the instrumental variable iv method implying that a household s saving rate increases by 2 3 percentage points if a sibling has been unemployed

precautionary saving and accidental bequests this paper presents a simple general equilibrium model of precautionary saving and accidental bequests this model is used to analyze the implications of individual lifetime uncertainty for aggregate consumption and capital accumulation a precautionary demand for saving arises because an individual consumer does not know in advance the date at which he will die and he wants to avoid low levels of consumption in the event that he lives longer than expected an implication of this precautionary saving is that when death does occur the consumer is generally holding some wealth which is then passed on to his heirs in the form of an accidental bequest even if all consumers have the same ex ante mortality probabilities there will be some intracohort variation in the date of death consequently there will be a nondegenerate distribution of bequests left by consumers in a cohort this nondegenerate distribution of bequests left by one generation induces variation in the distributions of wealth consumption and bequests of subsequent generations the importance of bequests in aggregate saving has been established by laurence kotlikoff and lawrence summers 1981 who reported that 80 percent of u s household wealth is inherited wealth one interpretation of this finding is that the simple life cycle model without bequest motives is an inadequate description of saving behavior in the united states but the model i present demonstrates that accidental bequests by selfish consumers can account for a potentially sizeable fraction of aggregate wealth although some part of bequests especially by the wealthy undoubtedly results from an explicit bequest motive accidental bequests also play a role in the intergenerational transfer of wealth as well as in the intragenerational variation in wealth in order to focus on the role of accidental bequests i purposely exclude a bequest motive from the specification of the utility function the effects of lifetime uncertainty on individual consumption behavior were first examined formally in a seminal paper by menachem yaari 1965 yaari s model provided the basic framework for virtually all subsequent work on uncertain lifetimes including well known papers by nils hakansson 1969 stanley fischer 1973 robert barro and james friedman 1977 david levhari and leonard mirman 1977 and kotlikoff and avia spivak 1981 however all of these papers focused on the consumption decision of an individual and ignored the effect of accidental bequests on the behavior of the recipients of these accidental bequests 2 as will be shown at various points in this paper changes in the economic environment can have effects on aggregate behavior which differ sharply from the effects on individual behavior because of the endogenous adjustment of bequests the effects of department of economics harvard university cambridge ma 02138 this paper is a revised version of bequests and social security with uncertain lifetimes nber working paper no 1372 june 1984 i thank olivier blanchard john burbidge christopher cavanagh robert clower stanley fischer benjamin friedman elhanan helpman mervyn king nobuhiro kiyotaki laurence kotlikoff robert mcdonald james pesando julio rotemberg lawrence summers lars svensson mark watson and jeffrey wolcowitz for valuable conversations and correspondence i also thank the participants in seminars at boston university columbia university cornell university federal reserve board harvard university university of iowa mit university of minnesota university of montreal national bureau of economic research north carolina state university the wharton school and yale university and two anonymous referees for their helpful comments i also thank the national science foundation for financial support 1 in the presence of perfect annuity and life insurance markets there may or may not be bequests depending on the presence or absence of a bequest motive but there would be no accidental bequests 2 kotlikoff and spivak focus on the role of the family in providing an incomplete annuities market but stop short of a full scale overlapping generations model in which the distribution of bequests is determined endogenously

how prudent are consumers using data from the consumer expenditure survey this paper presents a simple test that provides an explicit estimate of the parameter in the utility function that reflects the strength of the precautionary saving motive the coefficient of relative prudence the test yields a fairly precise estimate of a small precautionary motive in fact the estimate is too small to be consistent with widely accepted beliefs about risk aversion the presence of liquidity constrained households does not appear to explain this finding and there is some evidence that self selection of households into risky environments also cannot explain the results

a general formula for the optimal level of social insurance in an influential paper baily 1978 showed that the optimal level of unemployment insurance ui in a stylized static model depends on only three parameters risk aversion the consumption smoothing benefit of ui and the elasticity of unemployment durations with respect to the benefit rate this paper examines the key economic assumptions under which these parameters determine the optimal level of social insurance i show that a baily type expression with an adjustment for precautionary saving motives holds in a general class of dynamic models subject to weak regularity conditions for example the simple reduced form formula derived here applies with arbitrary borrowing constraints durable consumption goods private insurance arrangements and search and leisure benefits of unemployment

asset accumulation and labor force participation of disability insurance applicants abstract this paper provides empirical evidence of the existence of forward looking asset accumulation behavior among disability insurance applicants previously examined only in the theoretical literature using panel data from the rand health and retirement study i show that rejected applicants for social security disability insurance ssdi possess significantly more assets than accepted applicants immediately prior to application and exhibit lower attachment to the labor force these empirical results are consistent with the theoretical prediction in diamond and mirrlees 1978 and golosov and tsyvinski 2006 that certain individuals with high unwillingness to work maximize utility by planning in advance for their future disability insurance application because the existing empirical literature on disability insurance does not account for this intertemporal channel it may underestimate the total work disincentive effect of ssdi

do welfare asset limits affect household saving evidence from welfare reform we use data from the panel study of income dynamics to estimate the effect of new saving incentives implemented as part of the 1996 welfare reform on household saving economic theory predicts that loosening asset limits will increase total savings for households with a large ex ante probability of welfare receipt such as female headed households with children we follow a sample of female heads with children and find that in both absolute terms and relative to comparison groups of male heads and female heads without children there has been no effect of welfare policy changes on the saving of at risk households

precautionary saving in the small and in the large the theory of precautionary saving is shown to be isomorphic to the arrow pratt theory of risk aversion making possible the application of a large body of knowledge about risk aversion to precautionary saving and more generally to the theory of optimal choice under risk in particular a measure of the strength of the precautionary saving motive analogous to the arrow pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving and to give a new interpretation of the dreze modigliani substitution effect copyright 1990 by the econometric society

changes in risk and the demand for saving abstract how does risk affect saving empirical work typically examines the effects of detectible differences in risk within the data how these differences affect saving in theoretical models depends on the metric one uses for risk for labor income risk second degree increases in risk require prudence to induce increased saving demand however prudence is not necessary for first degree risk increases and not sufficient for higher degree risk increases for increases in interest rate risk a precautionary effect and a substitution effect need to be compared this paper provides necessary and sufficient conditions on preferences for an n th degree change in risk to increase saving