Working Paper
Insurance in Human Capital Models with Limited Enforcement
Krebs, Tom; Wright, Mark L. J.; Kuhn, Moritz (2016-03-26)
This paper develops a tractable human capital model with limited enforceability of contracts. The model economy is populated by a large number of long-lived, risk-averse households with homothetic preferences who can invest in risk-free physical capital and risky human capital. Households have access to a complete set of credit and insurance contracts, but their ability to use the available financial instruments is limited by the possibility of default (limited contract enforcement). We provide a convenient equilibrium characterization that facilitates the computation of recursive equilibria ...
Working Paper Series , Paper WP-2016-8

Working Paper
Human Capital Risk, Contract Enforcement, and the Macroeconomy
Krebs, Tom; Wright, Mark L. J.; Kuhn, Moritz (2014-10-22)
We use data from the Survey of Consumer Finance and Survey of Income Program Participation to show that young households with children are under-insured against the risk that an adult member of the household dies. We develop a tractable macroeconomic model with human capital risk, age-dependent returns to human capital investment, and endogenous borrowing constraints due to the limited pledgeability of human capital (limited contract enforcement). We show analytically that, consistent with the life insurance data, in equilibrium young households are borrowing constrained and under-insured ...
Working Paper Series , Paper WP-2014-9