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  3. American Economic Review
  4. November 2015
  5. Human Capital Risk, Contract Enforcement, and the Macroeconomy

Human Capital Risk, Contract Enforcement, and the Macroeconomy

  • Tom Krebs
  • Moritz Kuhn
  • Mark L. J. Wright
American Economic Review
vol. 105, no. 11, November 2015
(pp. 3223-72)
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Abstract

We use microdata to show that young households with children are underinsured against the risk that an adult member of the household dies. This empirical finding can be explained by a macroeconomic model with human capital risk, age-dependent returns to human capital investment, and endogenous borrowing constraints due to limited contract enforcement. When calibrated, the model quantitatively accounts for the observed life-cycle variation in life insurance holdings, financial wealth, earnings, and consumption inequality. The model also predicts that reforms making consumer bankruptcy more costly will substantially increase the volume of both credit and insurance. (JEL D14, D91, G22, J13, J24)

Citation

Krebs, Tom, Moritz Kuhn, and Mark L. J. Wright. 2015. "Human Capital Risk, Contract Enforcement, and the Macroeconomy." American Economic Review, 105 (11): 3223-72. DOI: 10.1257/aer.20111681

Additional Materials

JEL Classification

  • D14 Household Saving; Personal Finance
  • D15 Intertemporal Household Choice; Life Cycle Models and Saving
  • G22 Insurance; Insurance Companies; Actuarial Studies
  • J13 Fertility; Family Planning; Child Care; Children; Youth
  • J24 Human Capital; Skills; Occupational Choice; Labor Productivity