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Constrained labor supply and risk-aversion

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  • Drewianka, Scott

Abstract

This paper extends previous work by showing that consumption constraints typically increase individuals' risk-aversion even if the illiquid good (e.g., leisure) has good substitutes. Calibrations indicate time-use constraints may raise risk-aversion considerably under many common scenarios.

Suggested Citation

  • Drewianka, Scott, 2008. "Constrained labor supply and risk-aversion," Economics Letters, Elsevier, vol. 101(2), pages 130-133, November.
    • Handle: RePEc:eee:ecolet:v:101:y:2008:i:2:p:130-133
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    References listed on IDEAS

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    1. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2000. "Sticky Price Models of the Business Cycle: Can the Contract Multiplier Solve the Persistence Problem?," Econometrica, Econometric Society, vol. 68(5), pages 1151-1180, September.
    2. Raj Chetty & Adam Szeidl, 2007. "Consumption Commitments and Risk Preferences," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(2), pages 831-877.
    3. Grossman, Sanford J & Laroque, Guy, 1990. "Asset Pricing and Optimal Portfolio Choice in the Presence of Illiquid Durable Consumption Goods," Econometrica, Econometric Society, vol. 58(1), pages 25-51, January.
    4. Andrew Postlewaite & Larry Samuelson & Dan Silverman, 2008. "Consumption Commitments and Employment Contracts," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(2), pages 559-578.
    5. Attanasio, Orazio P & Weber, Guglielmo, 1995. "Is Consumption Growth Consistent with Intertemporal Optimization? Evidence from the Consumer Expenditure Survey," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1121-1157, December.
    6. Raj Chetty, 2006. "A New Method of Estimating Risk Aversion," American Economic Review, American Economic Association, vol. 96(5), pages 1821-1834, December.
    7. Bodie, Zvi & Merton, Robert C. & Samuelson, William F., 1992. "Labor supply flexibility and portfolio choice in a life cycle model," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 427-449.
    8. Donald Meyer & Jack Meyer, 2005. "Relative Risk Aversion: What Do We Know?," Journal of Risk and Uncertainty, Springer, vol. 31(3), pages 243-262, December.
    9. Cochrane, John H, 1991. "A Simple Test of Consumption Insurance," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 957-976, October.
    10. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, October.
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    Cited by:

    1. Kevin Hasker & Eren Inci, 2014. "Free Parking For All In Shopping Malls," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55(4), pages 1281-1304, November.

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    Keywords

    D810 J220 Risk-aversion Labor supply;

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