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Endogenous partial insurance and inequality
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Mengus, Eric and Pancrazi, Roberto (2020) Endogenous partial insurance and inequality. Journal of European Economic Association, 18 (5). pp. 2270-2314. doi:10.1093/jeea/jvz034 ISSN 1542-4766.
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WRAP-endogenous-partial-insurance-inequality-Pancrazi-2019.pdf - Accepted Version - Requires a PDF viewer. Download (1093Kb) | Preview |
Official URL: https://doi.org/10.1093/jeea/jvz034
Abstract
In this paper, we propose a model of endogenous partial insurance and we investigate its implications for macroeconomic outcomes, such as wealth inequality, asset accumulation, interest rate, and consumption smoothing. To this end, we include participation costs to state-contingent asset markets into an otherwise standard Aiyagari (1994) model. We highlight the resulting nonmonotonic relationship between wealth and insurance-market participation when insurance is costly. Poor households remain uninsured, middle-class households participate in the insurance market, whereas rich households decide to self-insure by only purchasing risk-free assets. After theoretically characterizing the endogenous partial insurance equilibrium, we quantify its effect, emphasizing the roles of a participation channel and an interest rate channel.
Item Type: | Journal Article | ||||||||
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Divisions: | Faculty of Social Sciences > Economics | ||||||||
Journal or Publication Title: | Journal of European Economic Association | ||||||||
Publisher: | Oxford University Press | ||||||||
ISSN: | 1542-4766 | ||||||||
Official Date: | October 2020 | ||||||||
Dates: |
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Volume: | 18 | ||||||||
Number: | 5 | ||||||||
Page Range: | pp. 2270-2314 | ||||||||
DOI: | 10.1093/jeea/jvz034 | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | Published | ||||||||
Reuse Statement (publisher, data, author rights): | This is a pre-copyedited, author-produced version of an article accepted for publication in Journal of European Economic Association following peer review. The version of record Eric Mengus, Roberto Pancrazi, Endogenous Partial Insurance and Inequality, Journal of the European Economic Association, , jvz034, is available online at: https://doi.org/10.1093/jeea/jvz034 | ||||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||||
Date of first compliant deposit: | 12 March 2019 | ||||||||
Date of first compliant Open Access: | 18 July 2020 | ||||||||
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