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New Strategies and New Data to Test Intertemporal Consumer and Firm Behavior

Objective

"Whenever markets fail to offer perfect insurance possibilities, consumers and firms, separately or jointly, will develop ways to reduce their intertemporal exposure to risk. The goal of this proposal is to use new empirical strategies and newly available microeconomic data to understand the behavioral, organizational, and contractual responses to uncertainty by consumers and firms, to describe their logic, to assess their effectiveness and their potential drawbacks. The proposal is composed of six lines of work. The first tests whether consumption responds to permanent shocks using exogenous firm closure as a proxy for permanent shocks. The second studies consumption insurance in the presence of family labor supply allowing for non-separable preferences. The third studies the importance of peer effects on consumption using a better definition of peers (co-workers) and an identification strategy robust to the reflection problem. The fourth project evaluates the behavioral effects of introducing lifetime limits on welfare use. Several European countries are contemplating introducing such limits and hence this research is timely. The fifth project is on climate volatility changes and farmers’ precautionary behavior (with particular reference to developing country). The theory of precautionary behavior suggests that farmers should respond to increase weather volatility by adopting procedures that reduce their exposure to its increased riskiness. Do we observe such behavior emerging in practice? The sixth and final last set of projects will use longitudinal employer-employee data to address questions regarding what happens within the “black box” of a firm. For example, do firms shape intertemporal wage contract to redistribute payment to production factors over time? Does workforce diversity affect firm productivity?"

Call for proposal

ERC-2011-StG_20101124
See other projects for this call

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Host institution

Istituto Einaudi per l'Economia e la Finanza
Address
Via Sallustiana 62
00187 Roma
Italy
Activity type
Research Organisations
EU contribution
€ 1 480 022
Principal investigator
Luigi Pistaferri (Dr.)
Administrative Contact
Marco Pagano (Prof.)

Beneficiaries (1)

Istituto Einaudi per l'Economia e la Finanza
Italy
EU contribution
€ 1 480 022
Address
Via Sallustiana 62
00187 Roma
Activity type
Research Organisations
Principal investigator
Luigi Pistaferri (Dr.)
Administrative Contact
Marco Pagano (Prof.)