TY  - JOUR
AU  - Postlewaite,Andrew
AU  - Samuelson,Larry
AU  - Silverman,Dan
TI  - Consumption, Commitmants and Preferences for Risk
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10527
PY  - 2004
Y2  - May 2004
UR  - http://www.nber.org/papers/w10527
L1  - http://www.nber.org/papers/w10527.pdf
N1  - Author contact info:
Andrew Postlewaite
Department of Economics
University of Pennsylvania
3718 Locust Walk/CR
Philadelphia, PA 19104
E-Mail: apostlew@sas.upenn.edu

Dan Silverman
Department of Economics
University of Michigan
Ann Arbor MI 48109-1220
Tel: 734/764-2447
Fax: 734/764-2769
E-Mail: dansilv@umich.edu
AB  - We examine an economy in which the cost of consuming some goods can be reduced by making commitments to consumption levels independent of the state. For example, it is cheaper to produce housing services via owner-occupied than rented housing, but the transactions costs associated with the former prompt relatively inflexible housing consumption paths. We show that consumption commitments can cause risk-neutral consumers to care about risk, creating incentives to both insure risks and bunch uninsured risks together. For example, workers may prefer to avoid wage risk while bearing an unemployment risk that is concentrated in as few states as possible.
ER  -