TY  - JOUR
AU  - Attanasio,Orazio P.
AU  - Paiella,Monica
TI  - Intertemporal Consumption Choices, Transaction Costs and Limited Participation to Financial Markets: Reconciling Data and Theory
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12412
PY  - 2006
Y2  - August 2006
UR  - http://www.nber.org/papers/w12412
L1  - http://www.nber.org/papers/w12412.pdf
N1  - Author contact info:
Orazio Attanasio
Department of Economics
University College London
Gower Street
London WC1E 6BT
UNITED KINGDOM
Tel: 44/20-76795880
Fax: 44/20-79162775
E-Mail: o.attanasio@ucl.ac.uk

Monica Paiella
Universita degli Studi di Napoli
E-Mail: monica.paiella@uniparthenope.it
M2  - featured in NBER digest on 2006-08-07
AB  - This paper builds a unifying framework that, within the theory of intertemporal consumption choices, brings together the limited participation -based explanation of the poor empirical performance of the C-CAPM and the transaction costs-based explanation of incomplete portfolios. Using the implications of the consumption model and observed household consumption and portfolio choices, we identify the preference parameters of interest and a lower bound for the costs rationalizing non-participation in financial markets, in the presence of unobserved heterogeneity in tastes for consumption and portfolio allocation. Using the US Consumer Expenditure Survey and assuming isoelastic preferences, we estimate the coefficient of relative risk aversion at 1.7 and a cost bound of 0.4 percent of non-durable consumption. Our estimate of the preference parameter is theoretically plausible and the bound sufficiently small to be likely to be exceeded by the actual total (observable and unobservable) costs of participating to financial markets.
ER  -