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Transfer programs under alternative insurance schemes and liquidity constraints

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  • Marcelo Bianconi

Abstract

We consider a dynamic allocation problem under alternative insurance and capital market regimes and proper risk aversion separate from intertemporal substitution. We apply the model to study the effect of one-size-fits-all transfers. We find that one-size-fits-all transfers can have different and diametrically opposed qualitative and quantitative effects on consumption, investment, expected growth of output and consumption and the fair price of insurance of the risky technology. The differences depend upon the regime of insurance to the risky technology, the regime of capital markets and the proper separate measures of risk aversion and intertemporal substitution.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/09638199.2011.538222
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal The Journal of International Trade & Economic Development.

Volume (Year): 20 (2011)
Issue (Month): 2 ()
Pages: 175-197

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Handle: RePEc:taf:jitecd:v:20:y:2011:i:2:p:175-197

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Related research

Keywords: transfers; insurance; liquidity constraint; intertemporal substitution; risk aversion;

References

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  1. Miles Kimball & Philippe Weil, 1992. "Precautionary Saving and Consumption Smoothing Across Time and Possibilities," Sciences Po publications 3976, Sciences Po.
  2. George Economides & Sarantis Kalyvitis & Apostolis Philippopoulos, 2004. "Do Foreign Aid Transfers Distort Incentives and Hurt Growth? Theory and Evidence from 75 Aid-recipient Countries," CESifo Working Paper Series 1156, CESifo Group Munich.
  3. Philippe Weil, 1989. "The Equity Premium Puzzle and the Riskfree Rate Puzzle," NBER Working Papers 2829, National Bureau of Economic Research, Inc.
  4. Galor, O. & Polemarchakis, H.M., 1984. "Intertemporal equilibrium and the transfor paradox," CORE Discussion Papers 1984014, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Santanu Chatterjee & Georgios Sakoulis & Stephen Turnovsky, 2000. "Unilateral Capital Transfers, Public Investment, and Economic Growth," Discussion Papers in Economics at the University of Washington 0008, Department of Economics at the University of Washington.
  6. Epstein, Larry G & Zin, Stanley E, 1991. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: An Empirical Analysis," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 263-86, April.
  7. Giuliano, Paola & Turnovsky, Stephen J., 2003. "Intertemporal substitution, risk aversion, and economic performance in a stochastically growing open economy," Journal of International Money and Finance, Elsevier, vol. 22(4), pages 529-556, August.
  8. David M Kreps & Evan L Porteus, 1978. "Temporal Resolution of Uncertainty and Dynamic Choice Theory," Levine's Working Paper Archive 625018000000000009, David K. Levine.
  9. Turunen-Red, Arja H. & Woodland, Alan D., 1988. "On the multilateral transfer problem : Existence of Pareto improving international transfers," Journal of International Economics, Elsevier, vol. 25(3-4), pages 249-269, November.
  10. Keane, Michael P. & Prasad, Eswar, 2002. "Inequality, Transfers and Growth: New Evidence from the Economic Transition in Poland," IZA Discussion Papers 448, Institute for the Study of Labor (IZA).
  11. Epstein, Larry G & Zin, Stanley E, 1989. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework," Econometrica, Econometric Society, vol. 57(4), pages 937-69, July.
  12. Weil, Philippe, 1990. "Nonexpected Utility in Macroeconomics," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 29-42, February.
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