Self-Insurance vs. Self-Financing: A Welfare Analysis of the Persistence of Shocks
Abstractmarket frictions over time with self-financing. With intermediate levels of frictions in the capital market, welfare costs of market incompleteness have a U shape against the persistence of idiosyncratic shocks. The right arm of the U reflects the difficulty of self-insurance against very persistent shocks; and the left arm, the difficulty of overcoming capital market frictions through self-financing when entrepreneurial opportunities are short-lived.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 1153.
Date of creation: 2010
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- Buera, Francisco J. & Shin, Yongseok, 2011. "Self-insurance vs. self-financing: A welfare analysis of the persistence of shocks," Journal of Economic Theory, Elsevier, vol. 146(3), pages 845-862, May.
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