Implications of Efficient Risk Sharing Without Commitment
AbstractConsumption data generally indicates that consumption risk is not perfectly diversified across individuals. This paper considers if and when imperfect diversification is a feature of efficient allocations in a symmetric information environment without commitment. It shows that if individuals are sufficiently patient, imperfect diversification is always sub-optimal in the long run; however, if individuals are not so patient, imperfect diversification is always optimal. The paper goes on to demonstrate that the way that history matters in an efficient allocation in a symmetric-information/no-commitment environment can be used to distinguish lack of commitment from other possible rationalizations of imperfect risk sharing, such as efficiency in the presence of asymmetric information. Copyright 1996 by The Review of Economic Studies Limited.
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Bibliographic InfoPaper provided by David K. Levine in its series Levine's Working Paper Archive with number 2053.
Date of creation: 08 Dec 2010
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- Kocherlakota, Narayana R, 1996. "Implications of Efficient Risk Sharing without Commitment," Review of Economic Studies, Wiley Blackwell, vol. 63(4), pages 595-609, October.
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