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Self-Insurance vs. Self-Financing: A Welfare Analysis of the Persistence of Shocks

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  • Francisco Buera

    (UCLA)

  • Yongseok Shin

    (WUSTL)

Abstract

market 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 Info

Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 1153.

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Date of creation: 2010
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Handle: RePEc:red:sed010:1153

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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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  13. Huggett, Mark & Ospina, Sandra, 2001. "Aggregate precautionary savings: when is the third derivative irrelevant?," Journal of Monetary Economics, Elsevier, vol. 48(2), pages 373-396, October.
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Cited by:
  1. Corbae, Dean & Marimon, Ramon, 2011. "Introduction to Incompleteness and Uncertainty in Economics," Journal of Economic Theory, Elsevier, vol. 146(3), pages 775-784, May.
  2. Jose Mustre-del-Rio & William Hawkins, 2012. "Financial Frictions and Occupational Mobility," 2012 Meeting Papers 1123, Society for Economic Dynamics.
  3. Modalsli, Jørgen Heibø, 2011. "Polarization, Risk and Welfare in General Equilibrium," Memorandum 27/2011, Oslo University, Department of Economics.

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