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The Feasible Gains from International Risk Sharing

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  • Eijffinger, Sylvester C W
  • Wagner, Wolf

Abstract

We argue that since there are several impediments to international risk sharing, the welfare gains from full international risk sharing, which have been the object of analysis in the previous literature, are not suggestive. Instead, we study the gains from feasible risk sharing and find that they are considerable (0.5% increase in permanent consumption). Marginal benefits from further risk sharing are low, which indicates that feasible risk sharing can achieve most of the benefits from international risk sharing. Surprisingly, we find that sharing short-term consumption risk lowers welfare. On the basis of the results we make suggestions on how to improve existing international risk sharing systems.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2691.

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Date of creation: Feb 2001
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Handle: RePEc:cpr:ceprdp:2691

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Keywords: International Risk Sharing; Welfare Gains;

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References

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  1. Stefano Athanasoulis & Eric van Wincoop, 1997. "Growth uncertainty and risksharing," Staff Reports 30, Federal Reserve Bank of New York.
  2. Maurice Obstfeld, 1995. "Evaluating Risky Consumption Paths: The Role of Intertemporal Substitutability," NBER Technical Working Papers 0120, National Bureau of Economic Research, Inc.
  3. G. Constantinides, 1990. "Habit formation: a resolution of the equity premium puzzle," Levine's Working Paper Archive 1397, David K. Levine.
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Cited by:
  1. Elizabeth Asiedu & Yi Jin & Anne Villamil, 2006. "Do lack of transparency and enforcement undermine international risk-sharing?," Annals of Finance, Springer, vol. 2(2), pages 123-140, March.
  2. Miret Padovani & Paolo Vanini, 2010. "An intergenerational cross-country swap," Journal of Risk Finance, Emerald Group Publishing, vol. 11(5), pages 446-463, November.

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