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Abstract

We characterize the solution to a dynamic model of risk sharing under non-commitment when saving is possible. Savings can play two important roles. First savings can be used to smooth aggregate consumption across different periods. Second, when savings are observable, they can act as a collateral that can be seized in the case of default. This relaxes the non-commitment constraint. When the aggregate income is fixed or when one of the agent is risk neutral, the allocation tends to first-best consumption. When one of the agent is risk neutral, this convergence occurs in an expected finite number of periods. Copyright Springer-Verlag Berlin/Heidelberg 2006

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File URL: http://hdl.handle.net/10.1007/s00199-005-0624-7
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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 28 (2006)
Issue (Month): 2 (06)
Pages: 357-372

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Handle: RePEc:spr:joecth:v:28:y:2006:i:2:p:357-372

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Related research

Keywords: Dynamic contracts; Risk sharing; Non-commitment; Savings.;

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Find related papers by JEL classification:

• E20 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
• E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

References

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1. Pishke, J.S., 1992. "Individual Income, Incomplete Information and Aggregate Consumption," Papers 9238, Tilburg - Center for Economic Research.
   
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2. Garcia, Rene & Lusardi, Annamaria & Ng, Serena, 1997. "Excess Sensitivity and Asymmetries in Consumption: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(2), pages 154-76, May.
   
   • René Garcia & Annamaria Lusardi & Serena Ng, 1995. "Excess Sensitivity and Asymmetries in Consumption: An Empirical Investigation," CIRANO Working Papers 95s-09, CIRANO.
   • Garcia, R. & Lusardi, A. & Ng, S., 1995. "Excess Sensitivity and Asymmetries in Consumption: an Empirical Investigation," Cahiers de recherche 9511, Universite de Montreal, Departement de sciences economiques.
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6. 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.
   
   • Ethan Ligon & Jonathan P. Thomas & Tim Worrall, 1997. "Informal Insurance Arrangements in Village Economies," Keele Department of Economics Discussion Papers (1995-2001) 97/08, Department of Economics, Keele University, revised Oct 2000.
7. Thomas, Jonathan & Worrall, Tim, 1988. "Self-enforcing Wage Contracts," Review of Economic Studies, Wiley Blackwell, vol. 55(4), pages 541-54, October.
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Citations

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Cited by:

1. Zaki Wahhaj, 2008. "Social Norms and Individual Savings in the Context of Informal Insurance," CEDI Discussion Paper Series 08-20, Centre for Economic Development and Institutions(CEDI), Brunel University.
   
   • Wahhaj, Zaki, 2010. "Social norms and individual savings in the context of informal insurance," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 511-530, December.
2. Ethan Ligon & Jonathan P. Thomas & Tim Worrall, 2000. "Mutual Insurance, Individual Savings and Limited Commitment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(2), pages 216-246, April.
   
   • Ethan Ligon & Jonathan P. Thomas & Tim Worrall, 1998. "Mutual Insurance, Individual Savings and Limited Commitment," Keele Department of Economics Discussion Papers (1995-2001) 98/14, Department of Economics, Keele University.
3. 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.
   
   • Ethan Ligon & Jonathan P. Thomas & Tim Worrall, 1997. "Informal Insurance Arrangements in Village Economies," Keele Department of Economics Discussion Papers (1995-2001) 97/08, Department of Economics, Keele University, revised Oct 2000.
4. Martin Boyer, M. & Gobert, Karine, 2009. "The impact of switching costs on vendor financing," Finance Research Letters, Elsevier, vol. 6(4), pages 236-241, December.
   
   • Martin Boyer & Karine Gobert, 2007. "The Impact of Switching Costs on Vendor Financing," Cahiers de recherche 07-18, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke.
5. Stefan Dercon & Tessa Bold, 2009. "Contract Design in Insurance Groups," Economics Series Working Papers 421, University of Oxford, Department of Economics.
   
   • Tessa Bold & Stefan Dercon, 2009. "Contract Design in Insurance Groups," CSAE Working Paper Series 2009-04, Centre for the Study of African Economies, University of Oxford.
6. Dubois, Pierre, 2002. "Consommation, partage de risque et assurance informelle : développements théoriques et tests empiriques récents," L'Actualité Economique, Société Canadienne de Science Economique, vol. 78(1), pages 115-149, Mars.
7. Karine Gobert, 2001. "Capital Structure and Risk Management," CIRANO Working Papers 2001s-51, CIRANO.

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