Essays in risk and insurance: A dynamic general equilibrium approach

Households face uncertainty in their future labor income and wealth. Risk-averse households seek to minimize their exposure to such uncertainty by smoothing consumption over their lifetime. Using a dynamic general equilibrium framework, this thesis studies household behavior when confronted different sources of risk.; Essay one addresses efficient risk sharing with risky durables. Does limited commitment still account for the observed risk sharing behavior? This essay analyzes efficient risk sharing between a committed intermediary and uncommitted house holds who face income and durable risk. The intermediary offers contracts that keep households in the risk-sharing contract rather than living in autarky. Autarky depends on exogenous endowments and endogenous durables. When compared to data, the model generates too much risk sharing. However, as the probability of disaster increases, the efficient amount of durable risk-sharing decreases while the risk-sharing for non-durables increases. When households are divided at the state level, empirical analysis seems to support such behavior.; Essay two explores portfolio reallocation caused by anticipated inflation. PSID data shows that a household's aggregate holdings in bonds, stocks, and money are humped over the life-cycle. The portfolio share of stocks and bonds follow a humped pattern. Money's share follows a ‘U’-shape. Thus, inflation may have distributional effects over the life cycle through a portfolio balance effect. These effects are investigated through a stochastic overlapping generation model. Individuals face uncertain survival and income, and smooth consumption by holding money, bonds, and capital. Given the model replicates portfolios, as inflation increases, households reallocate into bonds, out of money, and maintain stock positions.; Essay three explores irregularities in life insurance holdings which indicate that participation rates by dual-worker married households are higher than for single-worker married households. Basic risk aversion arguments would suggest the opposite. To investigate this pattern, a dynamic overlapping generation model is constructed. Households have stochastic demographics comprised of age, sex, and marital status. Households consume and supply labor. To insure against income and demographic shocks, households hold capital or life insurance. Given competitive production and life insurance sectors, the equilibrium is calculated and compared with the SCF. Economic theory reasonably matches holding patterns.