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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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References

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  1. Francisco Covas, 2005. "Uninsured Idiosyncratic Production Risk with Borrowing Constraints," Working Papers 05-26, Bank of Canada.
  2. Marco Cagetti & Mariacristina De Nardi, 2005. "Entrepreneurship, frictions, and wealth," Working Paper Series WP-05-09, Federal Reserve Bank of Chicago.
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  5. Heathcote, Jonathan & Storesletten, Kjetil & Violante, Giovanni L., 2008. "Insurance and opportunities: A welfare analysis of labor market risk," Journal of Monetary Economics, Elsevier, vol. 55(3), pages 501-525, April.
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  8. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2009. "Quantitative macroeconomics with heterogeneous households," Staff Report 420, Federal Reserve Bank of Minneapolis.
  9. George-Marios Angeletos, 2007. "Uninsured Idiosyncratic Investment Risk and Aggregate Saving," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(1), pages 1-30, January.
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Cited by:
  1. Modalsli, Jørgen Heibø, 2011. "Polarization, Risk and Welfare in General Equilibrium," Memorandum 27/2011, Oslo University, Department of Economics.
  2. Corbae, Dean & Marimon, Ramon, 2011. "Introduction to Incompleteness and Uncertainty in Economics," Journal of Economic Theory, Elsevier, vol. 146(3), pages 775-784, May.
  3. William B. Hawkins & Jose Mustre-del-Rio, 2012. "Financial frictions and occupational mobility," Research Working Paper RWP 12-06, Federal Reserve Bank of Kansas City.

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