Abstract
We examine the impact of incomplete risk-sharing on growth and welfare. The source of market incompleteness in our economy is private information: a household's idiosyncratic productivity shock is not observable by others. Risk-sharing between households occurs through long-term contracts with intermediaries. We find that incomplete risk-sharing tends to reduce the rate of growth relative to the complete risk-sharing benchmark. Numerical examples indicate that the welfare cost and the growth effect of private information are small.
Original language | English (US) |
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Pages (from-to) | 499-521 |
Number of pages | 23 |
Journal | Journal of Monetary Economics |
Volume | 47 |
Issue number | 3 |
DOIs | |
State | Published - Jun 2001 |
Externally published | Yes |
Keywords
- E20
- Growth
- Long-term contracts
- O16
- Risk-sharing
ASJC Scopus subject areas
- Finance
- Economics and Econometrics