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A Test of the Full Insurance Hypothesis: The Case of Japan

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  • Kohara, Miki
  • 小原, 美紀
  • Ohtake, Fumio
  • 大竹, 文雄
  • Saito, Makoto
  • 齊藤, 誠

Abstract

Exploiting the panel data structure of the Family Income and Expenditure Survey, compiled from 1989 to 1997 by the Japanese Bureau of Statistics, this paper explores how effectively idiosyncratic shocks are shared among consumers in Japan. Tests are conducted for the total consumption, together with each category of consumption expenditures. In addition, the empirical analysis of the paper accounts for the disaster shock caused by the Hyogo Earthquake that took place in January 1995. While the overall empirical results indicate that the full insurance hypothesis is strongly rejected, they suggest that idiosyncratic shocks are insured at least partially. With respect to the effect of the earthquake shock, the residents in the earthquake area indeed bore more shocks than those in other regions. The paper also points out that the extent of risk-sharing among households in Japan is fairly similar to that in the US.
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Suggested Citation

  • Kohara, Miki & 小原, 美紀 & Ohtake, Fumio & 大竹, 文雄 & Saito, Makoto & 齊藤, 誠, 2001. "A Test of the Full Insurance Hypothesis: The Case of Japan," Discussion Papers 2001-05, Graduate School of Economics, Hitotsubashi University.
    • Handle: RePEc:hit:econdp:2001-05
    Note: May 30, 2001
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    References listed on IDEAS

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    1. Mace, Barbara J, 1991. "Full Insurance in the Presence of Aggregate Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 928-956, October.
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    3. Ogaki, Masao & Zhang, Qiang, 2001. "Decreasing Relative Risk Aversion and Tests of Risk Sharing," Econometrica, Econometric Society, vol. 69(2), pages 515-526, March.
    4. 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.
    5. Attanasio, Orazio & Davis, Steven J, 1996. "Relative Wage Movements and the Distribution of Consumption," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1227-1262, December.
    6. Atkeson, Andrew & Ogaki, Masao, 1996. "Wealth-varying intertemporal elasticities of substitution: Evidence from panel and aggregate data," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 507-534, December.
    7. Rubinstein, Mark, 1974. "An aggregation theorem for securities markets," Journal of Financial Economics, Elsevier, vol. 1(3), pages 225-244, September.
    8. Constantinides, George M & Duffie, Darrell, 1996. "Asset Pricing with Heterogeneous Consumers," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 219-240, April.
    9. Fumio Hayashi, 1985. "The Permanent Income Hypothesis and Consumption Durability: Analysis Based on Japanese Panel Data," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(4), pages 1083-1113.
    10. Nelson, Julie A, 1994. "On Testing for Full Insurance Using Consumer Expenditure Survey Data: Comment," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 384-394, April.
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    Cited by:

    1. HORI Masahiro & SHIMIZUTANI Satoshi, 2002. "Micro Data Studies on Japanese Household Consumption," ESRI Discussion paper series 015, Economic and Social Research Institute (ESRI).
    2. Yasuyuki Sawada & Satoshi Shimizutani, 2005. "Are People Insured Against Natural Disasters? Evidence from the Great Hanshin-Awaji (Kobe) Earthquake in 1995," CARF F-Series CARF-F-019, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    3. Yamada, Tomoaki, 2012. "Income risk, macroeconomic and demographic change, and economic inequality in Japan," Journal of Economic Dynamics and Control, Elsevier, vol. 36(1), pages 63-84.
    4. Kota Ogasawara, 2018. "Consumption smoothing in the working-class households of interwar Japan," Papers 1807.05737, arXiv.org, revised Feb 2024.
    5. Yamada, Tomoaki, 2014. "A note on risk sharing against idiosyncratic shocks and geographic mobility in Japan," MPRA Paper 54886, University Library of Munich, Germany.
    6. SAWADA Yasuyuki & SHIMIZUTANI Satoshi, 2004. "How Do People Cope With Natural Disasters? Evidence from the Great Hanshin-Awaji Earthquake," ESRI Discussion paper series 101, Economic and Social Research Institute (ESRI).
    7. Abe, Naohito & Yamada, Tomoaki, 2009. "Nonlinear income variance profiles and consumption inequality over the life cycle," Journal of the Japanese and International Economies, Elsevier, vol. 23(3), pages 344-366, September.
    8. Chiaki Hara, 2006. "Heterogeneous Risk Attitudes In A Continuous‐Time Model," The Japanese Economic Review, Japanese Economic Association, vol. 57(3), pages 377-405, September.
    9. Yasuyuki Sawada & Satoshi Shimizutani, 2007. "Consumption insurance against natural disasters: evidence from the Great Hanshin-Awaji (Kobe) earthquake," Applied Economics Letters, Taylor & Francis Journals, vol. 14(4), pages 303-306.

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