Ian Preston, Richard Blundell,
& Luigi Pistaferri talk with ScienceWatch.com and
answer a few questions about this month's Fast Breaking Paper
Paper in the field of Economics & Business.
Ian Preston
Article Title: Consumption Inequality and Partial
Insurance
Authors: Blundell, R;Pistaferri, L;Preston,
I
Journal: AMER ECON REV
Volume: 98
Issue: 5
Page: 1887-1921
Year: DEC 2008
* UCL, Dept Econ, Gower St, London WC1E 6BT, England.
* UCL, Dept Econ, London WC1E 6BT, England.
* Stanford Univ, Dept Econ, Stanford, CA 94305 USA.
Why do you think your paper is highly
cited?
The extent and nature of income uncertainty and the capacity of individual
households to insure themselves against its effects is critical both to
macroeoconomic modelling and to understanding of the way inequality evolves
at the microeconomic level. The paper is therefore of relevance to a wide
audience within the discipline.
Does it describe a new discovery, methodology, or
synthesis of knowledge?
Richard Blundell
Luigi Pistaferri
The idea of using the joint distribution of income and consumption to
investigate these issues is one that we have advanced in earlier work but
this paper is more sophisticated in its treatment of possibilities for
self-insurance and the use of longitudinal data strengthens the scope to
apply these ideas empirically.
Would you summarize the significance of your paper
in layman's terms?
The paper shows that understanding the persistence of income shocks is
crucial to interpreting the evolution of inequality in income and
consumption in the US.
While we show that transitory income shocks appear to be almost fully
insurable, except for the very lowest income groups, permanent shocks are
only partly so for any group in the population.
A growth in income risk over the 1980s was characterized by a declining
persistence of shocks which helps explain why growing income inequality
translated increasingly weakly into growing consumption inequality.
How did you become involved in this research, and
were there any problems along the way?
The subject matter lies at the confluence of the authors' interests in
earnings dynamics, income distribution, and consumption and savings
behavior.
A key problem in this area has been the lack of a common longitudinal data
source with comparably reliable data on incomes and expenditures. We
develop an imputation technique using information from reliable sources of
consumption data to create a new panel series which fills the gap.
Where do you see your research leading in the
future?
There remains much to be done in understanding, for example, household
insurance mechanisms and the nature of uncertainty in asset income.
Do you foresee any social or political
implications for your research?
The questions addressed here are crucial to an understanding of the
implications for household living standards of changes in the distribution
of income.
Ian Preston
Professor
Department of Economics
University College London
London, UK Web
Richard Blundell
Ricardo Professor of Political Economy
Department of Economics
University College London
London, UK
and
Research Director
ESRC Centre for the Microeconomic Analysis of Public Policy
Institute for Fiscal Studies
London, UK Web
Luigi Pistaferri
Associate Professor of Economics
Stanford University
Stanford, CA,
USA Web