Munich Personal RePEc Archive

Informal Insurance and Income Inequality

Laczó, Sarolta (2008): Informal Insurance and Income Inequality.

[img]
Preview
PDF
MPRA_paper_7197.pdf

Download (807Kb) | Preview

Abstract

This paper examines the effects of income inequality in a risk sharing model with limited commitment, that is, when insurance agreements have to be self-enforcing. In this context, numerical dynamic programming is used to examine three questions. First, I consider heterogeneity in mean income, and study the welfare effects when inequality together with aggregate income increases. Second, subsistence consumption is introduced to see how it affects consumption smoothing. Finally, income is endogenized by allowing households to choose between two production technologies, to look at the importance of consumption insurance for income smoothing.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.