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Incomplete market participation, endogenous endowment risks and welfare

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  • Ohno, Hiroaki

Abstract

This paper investigates the equilibrium growth rate of capital stock and social welfare when risk-sharing externalities are incorporated into the infinite-horizon model where endowment risks are endogenized by the degree of incomplete market participation. There exist Nash equilibria depending on the degree of market participation. Under equilibrium with incomplete market participation, the endowment risks cannot be fully diversified as they induce precautionary savings and the over-accumulation of capital stocks while spillover effects on production technologies lead to the under-accumulation of capital stocks. This may have desirable effects on economic growth and improve social welfare.

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  • Ohno, Hiroaki, 2009. "Incomplete market participation, endogenous endowment risks and welfare," Journal of Economics and Business, Elsevier, vol. 61(5), pages 392-403, September.
    • Handle: RePEc:eee:jebusi:v:61:y::i:5:p:392-403
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    References listed on IDEAS

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    Cited by:

    1. Hiroaki OHNO, 2011. "Limited Market Participation, Financial Intermediaries,And Endogenous Growth," Review of Economics & Finance, Better Advances Press, Canada, vol. 1, pages 53-62, August.

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