Essays in uninsurable income risk and household behavior.

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Essays in uninsurable income risk and household behavior.

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This dissertation consists of two essays. The first essay examines a key driving force of the recent decline in the U.S. homeownership rate by investigating the effect of each factor on the housing and mortgage decisions. The second paper assesses how efficiently households in the U.S. economy insure their cohort-specific income risk. Although the applications differ, they have a unifying theme: macroeconomic implications of households' behavior in the presence of uninsurable income risk. Both essays address this theme using household-level data and quantitative macroeconomic models. In the first essay, I ask if a mortgage credit crunch caused the recent decline in the homeownership rate in the U.S. To answer this question, I develop a life-cycle model that accommodates the expansion of alternative mortgages that featured delayed amortization. I use the model to measure the distributional consequences of two factors: (1) the fade-out of alternative mortgages and (2) declines in labor earnings. I find that the declining labor income is the main driving force behind the cross-sectional feature of the housing bust: the proportionally larger decrease in homeownership among non-college educated households. The fade-out of alternative mortgages, however, predicts the opposite. This is because college educated households, who have high future earnings, are more likely to utilize alternative mortgages when those mortgages are available. In the second essay, we propose an observation-based approach to measuring what percentage of household's income risk is insured and how much welfare cost is generated by the departure from full-insurance. Using a synthetic panel data set from the Consumer Expenditure Survey (CEX) for the period of 1980-2009, we investigate how efficiently U.S. households insure cohort-specific income risk. There are two main findings. First, on average, U.S. households insured 64% of their cohort-level income risk, and the welfare cost of uninsured risk was 1% of their annual expenditure on nondurables and services. Second, households who faced a higher risk tended to insure a larger portion of their risk. This observation implies either or both of the following: (1) they made more effort to hedge their risk (Kocherlakota (1996) and Krueger and Perri (2006)), or (2) the dispersion in income risk mostly came from transitory shocks.


University of Minnesota Ph.D. dissertation.June 2011. Major: Economics. Advisor: Jos´e-V´ıctor R´ıos-Rull. 1 computer file (PDF); viii, 65 pages, appendices A-B.

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Narita, Machiko. (2011). Essays in uninsurable income risk and household behavior.. Retrieved from the University Digital Conservancy,

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