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The Asymmetric Effect of Diffusion Processes: Risk Sharing and Contagion

Author

Listed:
  • Mauro Gallegati
  • Bruce Greenwald
  • Matteo Richiardi
  • Joseph Stiglitz

Abstract

We provide a general characterization of diffusion processes, allowing to analyze both risk-sharing and contagion at the same time. We show that interdependencies are beneficial when the economic environment is favorable, and detrimental when the economic environment deteriorates. The risk of contagion increases the volatility of outcome and thus reduces the ability of the network to provide risk-sharing.

Suggested Citation

  • Mauro Gallegati & Bruce Greenwald & Matteo Richiardi & Joseph Stiglitz, 2007. "The Asymmetric Effect of Diffusion Processes: Risk Sharing and Contagion," LABORatorio R. Revelli Working Papers Series 71, LABORatorio R. Revelli, Centre for Employment Studies.
    • Handle: RePEc:cca:wplabo:71
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Risk-sharing; Contagion; Networks.;
    All these keywords.

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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