NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Consumption and Labor Supply with Partial Insurance: An Analytical Framework

Jonathan Heathcote, Kjetil Storesletten, Giovanni L. Violante

NBER Working Paper No. 15257
Issued in August 2009
NBER Program(s):   EFG   LS

This paper studies consumption and labor supply in a model where agents have partial insurance and face risk and initial heterogeneity in wages and preferences. Equilibrium allocations and variances and covariances of wages, hours and consumption are solved for analytically. We prove that all parameters of the structural model are identified given panel data on wages and hours, and cross-sectional data on consumption. The model is estimated on US data. Second moments involving hours and consumption show that the rise in wage dispersion in the 1970s was effectively insured by households, while the rise in the 1980s was not.

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Document Object Identifier (DOI): 10.3386/w15257

Published: Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2014. "Consumption and Labor Supply with Partial Insurance: An Analytical Framework," American Economic Review, American Economic Association, American Economic Association, vol. 104(7), pages 2075-2126, July. citation courtesy of

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