Intertemporal Choice and the Cross-Sectional Variance of Marginal Utility

Attanasio, Orazio; Jappelli, Tullio

doi:10.1162/003465301750160009

“…This part of the paper follows and develops work by Deaton and Paxson (1994), Attanasio and Jappelli (2001) and Attanasio et al (2001a,b). In particular, we test the restrictions implied by full risk sharing on the evolution of the cross sectional variance of consumption.…”

mentioning

confidence: 84%

“…See also Attanasio and Jappelli (2001) and Jappelli and Pistaferri (2001). where the subscript g indicates the fact that the variance is computed within a group Taking first differences of equation (9) one gets:…”

mentioning

confidence: 99%

Wage shocks and consumption variability in Mexico during the 1990s

Attanasio

¹

,

Székely

²

2004

Journal of Development Economics

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This paper presents evidence on the relationship between shocks to relative male wages, and changes in household consumption in Mexico during the 1990s decade, which is a period characterized by high volatility. Apart from performing analysis of this type for Mexico for the first time, the paper has mainly two contributions. The first is the use of alternative data sources to construct instrumental variables for wages. The second is to examine differences across four consumption categories: non-durable goods, durable goods, education and health. Our results for non-durable goods consumption reject the hypothesis that Mexican households are able to insure idiosyncratic risk. For the comparisons across consumption categories, the conclusion is that households in Mexico tend to react to temporary shocks by contracting the consumption of goods that represents longer run investment in human capital, which makes them more vulnerable in the future. JEL Classification:

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“…Notice that, given the income process and the sequence fq t g equations (7) and (8) de ne (even when a closed form solution does not exist), consumption. It is interesting to compare equation (8) for t = 1 with equation 3. In the complete market case, the agent has available a wide array of state contingent securities that are linked in an individual budget constraint that sums over time and across histories, as all trades can be made at time 1.…”

Section: Permanent Income (Self Insurance)mentioning

confidence: 99%

“…14 Recall conditions 7and (8) and the fact that there is a one-to-one onto mapping between x t and t histories in this model. 15 If we normalize asset holding to zero, we indeed have T = c T y T ; T 1 = c T 1 y T 1 ; and so on.…”

Section: The Ack Economy As a Foundation Of The Bewley Modelmentioning

confidence: 99%

Risk Sharing in Private Information Models with Asset Accumulation: Explaining the Excess Smoothness of Consumption

Attanasio¹,

Pavoni²

2007

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We derive testable implications of model in which first best allocations are not achieved because of a moral hazard problem with hidden saving. We show that in this environment agents typically achieve more insurance than that obtained under autarchy via saving, and that consumption allocation gives rise to 'excess smoothness of consumption', as found and defined by Campbell and Deaton (1987). We argue that the evidence on excess smoothness is consistent with a violation of the simple intertemporal budget constraint considered in a Bewley economy (with a single asset) and use techniques proposed by Hansen et al. (1991) to test the intertemporal budget constraint. We also construct closed form examples where the excess smoothness parameter has a structural interpretation in terms of the severity of the moral hazard problem. Evidence from the UK on the dynamic properties of consumption and income in micro data is consistent with the implications of the model.

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“…For example, the full information model satis es this conditions as well, and when preferences are separable c t has zero variance. The key distinguishing feature between this allocation and the permanent income model is the fact that the former does not satisfy the (NPVC) (8). That is, the intertemporal budget constraint based on that single asset is violated because it ignores the state contingent transfers implied by the constrained e cient equilibrium allocation.…”

Section: Moral Hazard With Hidden Asset Accumulationmentioning

confidence: 99%

Risk Sharing in Private Information Models With Asset Accumulation: Explaining the Excess Smoothness of Consumption

Attanasio

¹

,

Pavoni

²

2011

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We derive testable implications of model in which first best allocations are not achieved because of a moral hazard problem with hidden saving. We show that in this environment agents typically achieve more insurance than that obtained under autarchy via saving, and that consumption allocation gives rise to 'excess smoothness of consumption', as found and defined by Campbell and Deaton (1987). We argue that the evidence on excess smoothness is consistent with a violation of the simple intertemporal budget constraint considered in a Bewley economy (with a single asset) and use techniques proposed by Hansen et al. (1991) to test the intertemporal budget constraint. We also construct closed form examples where the excess smoothness parameter has a structural interpretation in terms of the severity of the moral hazard problem. Evidence from the UK on the dynamic properties of consumption and income in micro data is consistent with the implications of the model.

show abstract

Intertemporal Choice and the Cross-Sectional Variance of Marginal Utility

Cited by 16 publications

References 8 publications

Wage shocks and consumption variability in Mexico during the 1990s

Wage shocks and consumption variability in Mexico during the 1990s

Risk Sharing in Private Information Models with Asset Accumulation: Explaining the Excess Smoothness of Consumption

Risk Sharing in Private Information Models With Asset Accumulation: Explaining the Excess Smoothness of Consumption

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