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Mutual Insurance, Individual Savings and Limited Commitment

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  • Ethan Ligon

    (University of California, Berkeley)

  • Jonathan P. Thomas

    (University of Warwick)

  • Tim Worrall

    (Keele University)

Abstract

We examine a dynamic model of mutual insurance when households can also engage in self insurance by storage. We assume that there is no enforcement mechanism, so that any insurance is informal, and must be self-enforcing. We show that consumption allocations satisfy a modified Euler condition and that an enhanced storage technology can either improve or diminish welfare. Furthermore we show that the ex ante transfers introduced into dynamic informal insurance models recently by Gauthier, Poitevin, and Gonzales (1997) are only used here in the first period, with the role of ex ante transfers being replaced by differential individual storage. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1006/redy.1999.0081
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 3 (2000)
Issue (Month): 2 (April)
Pages: 216-246

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Handle: RePEc:red:issued:v:3:y:2000:i:2:p:216-246

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  1. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
  2. Ethan Ligon & Jonathan P Thomas & Tim Worrall, 1997. "Informal Insurance Arrangements in Village Economies," CRIEFF Discussion Papers 9705, Centre for Research into Industry, Enterprise, Finance and the Firm.
  3. Mark Rosenzweig & Andrew D. Foster, 1995. "Imperfect Commitment, Altruism, and the Family: Evidence from Transfer Behavior in Low-Income Rural Areas," Home Pages _075, University of Pennsylvania.
  4. Brian D. Wright & Kenneth M. Kletzer, 2000. "Sovereign Debt as Intertemporal Barter," American Economic Review, American Economic Association, vol. 90(3), pages 621-639, June.
  5. Gauthier, Celine & Poitevin, Michel & Gonzalez, Patrick, 1997. "Ex Ante Payments in Self-Enforcing Risk-Sharing Contracts," Journal of Economic Theory, Elsevier, vol. 76(1), pages 106-144, September.
  6. Jeremy I. Bulow & Kenneth Rogoff, 1988. "Sovereign Debt: Is To Forgive To Forget?," NBER Working Papers 2623, National Bureau of Economic Research, Inc.
  7. Karine Gobert & Michel Poitevin, 1997. "Contrat dynamique de partage de risque avec contraintes d'engagement et épargne," CIRANO Working Papers 97s-23, CIRANO.
  8. Taylor,J. Edward & Adelman,Irma, 1997. "Village Economies," Cambridge Books, Cambridge University Press, number 9780521550123.
  9. GOBERT, Karine & POITEVIN, Michel, 1998. "Non-Commitment and Savings in Dynamic Risk-Sharing Contracts," Cahiers de recherche 9806, Universite de Montreal, Departement de sciences economiques.
  10. Thomas, Jonathan & Worrall, Tim, 1988. "Self-enforcing Wage Contracts," Review of Economic Studies, Wiley Blackwell, vol. 55(4), pages 541-54, October.
  11. Narayana Kocherlakota, 2010. "Implications of Efficient Risk Sharing Without Commitment," Levine's Working Paper Archive 2053, David K. Levine.
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