We simulate a buffer stock model of consumption at the individual level, aggregate, and estimate regressions on the aggregated (simulated) data. Regressions of consumption on current (or lagged) disposable labor income—using the simulated data—are used to predict the marginal...

We provide empirical evidence that risk sharing enhances specialization in production. To the best of our knowledge, this well-established and important theoretical proposition has not been tested before. Our empirical procedure is summarized as follows. First, we construct a measure of...