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Risk Sharing in a Stochastic Overlapping Generations Economy

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Author Info
Henning Bohn (University of California, Santa Barbara)

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Abstract

This paper examines the impact of government policy on the allocation of aggregate risks in a stochastic OG model with production. The market allocation of risk depends significantly on the young generation's willingness to substitute intertemporally and on government policy. Safe government debt shifts productivity risk from old to young while wage-indexed social security is essentially neutral. I also compare the market allocation to the efficient allocation of risk. The market allocation is generally inefficient, except for the special case of wage-proportional incomes and logarithmic utility. Safe government debt seems to shift risk in the wrong direction.

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Publisher Info
Paper provided by Department of Economics, UC Santa Barbara in its series University of California at Santa Barbara, Economics Working Paper Series with number wp3-98.

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Date of creation: 01 Jan 1998
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Handle: RePEc:cdl:ucsbec:wp3-98

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Related research
Keywords: Risk; Sharing; Stochastic; Overlapping; Generations; Economy;

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