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research article
Insuring Consumption Using Income-Linked Assets
October 1, 2011
We evaluate financial assets with payoffs linked to individual labor income, as conceived by Shiller (2003) and others. Using a realistically calibrated life-cycle model, we find that such assets can generate nontrivial welfare benefits, depending on the precise structure of the instrument. However, the assets we consider can only eliminate a relatively small fraction of the welfare costs of labor income risk over the life cycle. We highlight the fact that although the purpose of such assets is to smooth consumption across states of nature, one must also consider the assets' effects on households' ability to smooth consumption over time.
Type
research article
Authors
Publication date
2011-10-01
Published in
Volume
15
Issue
4
Start page
835
End page
873
Peer reviewed
REVIEWED
EPFL units
Available on Infoscience
December 7, 2021
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