NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Household Risk Management

Adriano A. Rampini, S. Viswanathan

NBER Working Paper No. 22293
Issued in May 2016, Revised in May 2017
NBER Program(s):Corporate Finance, Economic Fluctuations and Growth, Health Economics

Households' insurance against shocks to income and asset values (that is, household risk management) is limited, especially for poor households. We argue that a trade-off between intertemporal financing needs and insurance across states explains this basic insurance pattern. In a model with limited enforcement, we show that household risk management is increasing in household net worth and income, incomplete, and precautionary. These results hold in economies with income risk, durable goods and collateral constraints, and durable goods price risk, under quite general conditions and, remarkably, risk aversion is sufficient and prudence is not required. In equilibrium, collateral scarcity lowers the interest rate, reduces insurance, and increases inequality.

download in pdf format
   (614 K)

email paper

The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22293

Users who downloaded this paper also downloaded* these:
Rampini w22324 Financing Durable Assets
Schmitt-Grohé and Uribe w22264 Multiple Equilibria in Open Economy Models with Collateral Constraints: Overborrowing Revisited
Badarinza, Campbell, and Ramadorai w22066 International Comparative Household Finance
Cai and Song w22403 Do Disaster Experience and Knowledge Affect Insurance Take-up Decisions?
Campbell and Cocco w9759 Household Risk Management and Optimal Mortgage Choice
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us