Human Capital Risk, Contract Enforcement, and the Macroeconomy

Journal article

Tom Krebs, Moritz Kuhn, Mark L. J. Wright
American Economic Review, vol. 105(11), 2015 Nov, pp. 3223-72

DOI: 10.1257/aer.20111681

Cite

APA Click to copy
Krebs, T., Kuhn, M., & Wright, M. L. J. (2015). Human Capital Risk, Contract Enforcement, and the Macroeconomy. American Economic Review, 105(11), 3223–3272. https://doi.org/10.1257/aer.20111681

Chicago/Turabian Click to copy
Krebs, Tom, Moritz Kuhn, and Mark L. J. Wright. “Human Capital Risk, Contract Enforcement, and the Macroeconomy.” American Economic Review 105, no. 11 (November 2015): 3223–72.

MLA Click to copy
Krebs, Tom, et al. “Human Capital Risk, Contract Enforcement, and the Macroeconomy.” American Economic Review, vol. 105, no. 11, Nov. 2015, pp. 3223–72, doi:10.1257/aer.20111681.

BibTeX Click to copy

@article{krebs2015a,
  title = {Human Capital Risk, Contract Enforcement, and the Macroeconomy},
  year = {2015},
  month = nov,
  issue = {11},
  journal = {American Economic Review},
  pages = {3223-72},
  volume = {105},
  doi = {10.1257/aer.20111681},
  author = {Krebs, Tom and Kuhn, Moritz and Wright, Mark L. J.},
  month_numeric = {11}
}

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.

JEL Classifications: D14, D91, G22, J13, J24