Author : Tom Krebs
Publisher :
ISBN 13 :
Total Pages : 55 pages
Book Rating : 4.:/5 (962 download)
Book Synopsis Under-insurance in Human Capital Models with Limited Enforcement by : Tom Krebs
Download or read book Under-insurance in Human Capital Models with Limited Enforcement written by Tom Krebs and published by . This book was released on 2016 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper uses a macroeconomic model calibrated to U.S. data to show that limited contract enforcement leads to substantial under-insurance against human capital risk. The model economy is populated by a large number of risk-averse households who can invest in risk-free physical capital and risky human capital. Expected human capital returns are age-dependent and calibrated to match the observed life-cycle profile of median labor income. Households have access to a complete set of credit and insurance contracts, but their ability to use the available financial instruments is limited by the possibility of default (limited contract enforcement). According to the baseline calibration, young households are severely under-insured against human capital (labor income) risk and the welfare losses due to the lack of insurance are substantial. These results are robust to realistic variations in parameter values.