Real Estate Papers
Document Type
Journal Article
Date of this Version
5-2010
Publication Source
The Review of Economics and Statistics
Volume
92
Issue
2
Start Page
408
Last Page
424
DOI
10.1162/rest.2010.11380
Abstract
Consumption commitments—goods like housing for which adjustment is costly—change the relationship between risk and consumption. Commitment provides a motive to reduce consumption when possible future losses are too small to warrant adjustment but not when losses are large enough that adjustment would be worthwhile. This implies conditions under which mean-preserving increases in risk can increase housing consumption. Our empirical evidence exploits the interaction of these conditions with a novel proxy for unemployment risk: couples sharing an occupation. Consistent with our model, same-occupation couples consume more housing only when adjustment costs are high and potential losses are sufficiently large.
Copyright/Permission Statement
© 2010 The President and Fellows of Harvard College and the Massachusetts Institute of Technology
Recommended Citation
Shore, S. H., & Sinai, T. (2010). Commitment, Risk, and Consumption: Do Birds of a Feather Have Bigger Nests?. The Review of Economics and Statistics, 92 (2), 408-424. http://dx.doi.org/10.1162/rest.2010.11380
Date Posted: 27 November 2017
This document has been peer reviewed.