TY  - JOUR
AU  - Shore,Stephen H.
AU  - Sinai,Todd
TI  - Commitment, Risk, and Consumption: Do Birds of a Feather Have Bigger Nests?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11588
PY  - 2005
Y2  - August 2005
UR  - http://www.nber.org/papers/w11588
L1  - http://www.nber.org/papers/w11588.pdf
N1  - Author contact info:
Steven H. Shore

Todd M. Sinai
University of Pennsylvania, Wharton School
1465 Steinberg Hall - Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104-6302
Tel: 215/898-5390
Fax: 215/573-2220
E-Mail: sinai@wharton.upenn.edu
M2  - featured in NBER digest on 2005-08-29
AB  - We show that incorporating consumption commitments into a standard model of precautionary saving can complicate the usual relationship between risk and consumption.  In particular, we present a model where the presence of plausible adjustment costs can cause a mean-preserving increase in unemployment risk to lead to increased consumption.  The predictions of this model are consistent with empirical evidence from dual-earning couples.  Couples who share an occupation face increased risk as their unemployment shocks are more highly correlated.  Such couples spend more on owner-occupied housing than other couples, spend no more on rent, and are more likely to rent than own. This pattern is strongest when the household faces higher moving costs, or when unemployment insurance provides a less generous safety net.
ER  -