American Economic Review Vol. 105 No. 11 2015

Human Capital Risk, Contract Enforcement, and the Macroeconomy

Tom Krebs¹; Moritz Kuhn²; Mark L. J. Wright³

¹ Department of Economics, University of Mannheim, 68313 Mannheim, Germany (e-mail: ) · ² Department of Economics, University of Bonn, 53113 Bonn, Germany (e-mail: ) · ³ Federal Reserve Bank of Chicago, 230 S. LaSalle Street, Chicago, IL 60604, and NBER (e-mail: )

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.

DOI

10.1257/aer.20111681

Volume

105

Issue

11

Pages

3223-3272

Language

en

Sources

openalex crossref bibtex:phds-export.bib

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓