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World Income Components: Measuring and Exploiting Risk-Sharing Opportunities

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Author Info
Stefano G. Athanasoulis
Robert J. Shiller

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Abstract

A method is constructed for decomposing the variance of changes in incomes in the world into components, to indicate the most important risk-sharing opportunities among people of the world. A constant absolute risk premium (CARP) model, an intertemporal general-equilibrium model of the world, is presented to permit optimal contract design. For a contract designer maximizing a social welfare function, the optimal contracts maximize the equilibrium world real interest rate. Securities are defined in terms of eigenvectors of a transformed variance matrix. The method is applied using Penn World Table data on the G-7 countries, 1950-92.

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Publisher Info
Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 91 (2001)
Issue (Month): 4 (September)
Pages: 1031-1054
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Handle: RePEc:aea:aecrev:v:91:y:2001:i:4:p:1031-1054

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  14. Robert J. Shiller & Stefano Athanasoulis, 1995. "World Income Components: Measuring and Exploiting International Risk Sharing Opportunities," NBER Working Papers 5095, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Acharya, Viral V & Bisin, Alberto, 2003. "Optimal Financial Market Integration and Security Design," CEPR Discussion Papers 3852, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Robert J. Shiller, 2003. "Social Security and Individual Accounts as Elements of Overall Risk-Sharing," American Economic Review, American Economic Association, vol. 93(2), pages 343-347, May. [Downloadable!]
  3. Stephane Pallage & Michel A. Robe, 2002. "The States vs. the states: On the Welfare Cost of Business Cycles in the U.S," Cahiers de recherche du Département des sciences économiques, UQAM 20-17, Université du Québec à Montréal, Département des sciences économiques, revised Oct 2002. [Downloadable!]
    Other versions:
  4. Ken Miyajima, 2006. "How to Evaluate GDP-Linked Warrants: Price and Repayment Capacity," IMF Working Papers 06/85, International Monetary Fund. [Downloadable!]
  5. Mark J. Kamstra & Robert J. Shiller, 2009. "The Case for Trills: Giving the People and Their Pension Funds a Stake in the Wealth of the Nation," Cowles Foundation Discussion Papers 1717, Cowles Foundation, Yale University. [Downloadable!]
  6. Maria Giduskova & Borja Larrain, 2006. "International risk-taking, volatility, and consumption growth," Communities and Banking, Federal Reserve Bank of Boston. [Downloadable!]
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