Uninsured idiosyncratic investment risk and aggregate saving

George Marios Angeletos*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

105 Scopus citations


This paper augments the neoclassical growth model to study the macroeconomic effects of uninsured idiosyncratic investment, or capital-income, risk. Under standard assumptions for preferences and technologies, individual policy rules are linear in individual wealth, ensuring that the equilibrium dynamics for aggregate quantities and prices are independent of the wealth distribution. The analysis thus remains highly tractable despite the incompleteness of markets. As compared to complete markets, the steady state is characterized by both a lower interest rate and a lower capital stock when the elasticity of intertemporal substitution is higher than the fraction of private equity in total wealth. For empirically plausible parameterizations, this condition is easily satisfied, and the reduction in aggregate saving and income is quantitatively significant. These findings contrast with Bewley models, where idiosyncratic labor-income risk leads to higher aggregate saving and income.

Original languageEnglish (US)
Pages (from-to)1-30
Number of pages30
JournalReview of Economic Dynamics
Issue number1
StatePublished - Jan 2007


  • Idiosyncratic risk
  • Incomplete markets
  • Precautionary saving
  • Private equity

ASJC Scopus subject areas

  • Economics and Econometrics


Dive into the research topics of 'Uninsured idiosyncratic investment risk and aggregate saving'. Together they form a unique fingerprint.

Cite this