TY  - JOUR
AU  - Attanasio,Orazio
AU  - Pavoni,Nicola
TI  - Risk Sharing in Private Information Models with Asset Accumulation: Explaining the Excess Smoothness of Consumption
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12994
PY  - 2007
Y2  - March 2007
UR  - http://www.nber.org/papers/w12994
L1  - http://www.nber.org/papers/w12994.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

Nicola Pavoni
Bocconi University
E-Mail: pavoni.nicola@gmail.com
AB  - We derive testable implications of model in which first best allocations are not achieved because of a moral hazard problem with hidden saving. We show that in this environment agents typically achieve more insurance than that obtained under autarchy via saving, and that consumption allocation gives rise to 'excess smoothness of consumption', as found and defined by Campbell and Deaton (1987). We argue that the evidence on excess smoothness is consistent with a violation of the simple intertemporal budget constraint considered in a Bewley economy (with a single asset) and use techniques proposed by Hansen et al. (1991) to test the intertemporal budget constraint. We also construct closed form examples where the excess smoothness parameter has a structural interpretation in terms of the severity of the moral hazard problem. Evidence from the UK on the dynamic properties of consumption and income in micro data is consistent with the implications of the model.
ER  -