We consider a life-cycle model with idiosyncratic risk in earnings, out-of-pocket medical and nursing home expenses, and survival. Partial insurance is available through welfare, Medicaid, and social security. Calibrating the model to the United States we show that savings for old-age, out-of-pocket expenses account for 13.5 percent of aggregate wealth, half of which is due to nursing home expe...

This paper considers a pure exchange stochastic overlapping generations model in which agents live for two periods. At each date, either a young or an old agent has larger endowments than the other, which is stochastically determined. In addition to the uncertainty, commitment cannot be externally enforced in this economy. In this environment, I suggest a transfer rule from a young agent to an ...

This paper makes explicit the links between preferences over lotteries on length of life and intertemporal choice. I show that the approach used by traditional life cycle models to account for uncertain survival corresponds to a strong assumption of risk neutrality with respect to the length of life. Relaxing such an assumption leads us to develop a more general formulation of lifetime utility ...

Credit Market Constraints and Labor Market Decisions In this paper, we examine whether imperfections in credit markets spill over to other markets, particularly the labor market. We take the case of Italy, a country that experienced changes in the mortgage market brought about by the 1992 European unification and other institutional shifts. These events make Italy a good laboratory to study the...

Theories of rational addiction posit that certain habit-forming goods—characterized by an increasing marginal utility of consumption—generate predictable dynamic patterns of consumer behavior. It has been suggested that attendance at sporting events represents an example of such a good, as evidenced by the pricing strategies of commercial sports interests. In this essay, we provide new evidence...

This paper analyzes the adjustment of consumption expenditures if the subjective mortality hazard increases after a shock. The life-cycle model with mortality risk implies an upward adjustment of consumption expenditures as a response to such a shock. I use data from the Survey of Health, Ageing and Retirement in Europe (SHARE) to test this implication. In each survey wave, the mortality hazard...

The Impact of Education on the Subjective Discount Rate in Ugandan Villages Heterogeneity in time discounting may reinforce the existing barriers to save and invest faced by rural populations in developing countries. We elicit a subjective discount rate for a varied sample of Ugandan villagers. In accordance with other studies, we have found the discount rate to decrease with education. We exam...

This paper is an empirical investigation of the behavioral life-cycle savings model. This model posits that self-control problems causes individuals to depart substantially from rational behavior. I show that this model can explain how the consumption of individuals at or near retirement vary with changes in different types of financial assets. Specifically, consumption spending is sensitive to...

This paper develops a theory of informal insurance in the presence of an intertemporal technology. It is shown that when an insurance agreement suffers from enforcement problems, constraints on individual savings behaviour can enable the group to sustain greater cooperation. This result provides a motivation for a variety of social norms observed in traditional societies which discourage ‘exces...

Should long-term assets such as infrastructure, education, and the environment earn the same return as productive capital? If yes, we can say that investments in such assets pass the cost-benefit test. But time-inconsistent decision-makers prefer to violate the test: long-term assets provide commitment to current preferences, leading to investment biases. We formulate the cost-benefit requireme...