Advanced Search
MyIDEAS: Login

Investment and Insurance in an Economic Union

Contents:

Author Info

  • Emilio Espino

    (Universidad Torcuato Di Tella)

Abstract

The presence of private information limits the extent of risk sharing in an economic union. Studying the optimal dynamic arrangement with these impediments is particularly important because of its potential effect on investment and the distribution of power between its members. This paper studies this problem in a neoclassical growth model with two countries. One of the countries faces "demand" shocks that are privately observed. The economic union must decide how much help they should provide to this country and how to finance those transfers: Should they come from a reduction of investment or of consumption of the other member? Importantly, the viability of the Economic Union may be at risk if private information imposes large welfare losses. To address these questions, an alternative recursive method to solve for the optimal allocation in this context is developed. The results suggest that, in spite of private information, it is still (constrained) optimal to provide some insurance but at the cost of a reduction in the welfare of the country helped. The welfare costs of private information are non-monotone in the size of the country with private information.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.economicdynamics.org/meetpapers/2012/paper_1176.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 1176.

as in new window
Length:
Date of creation: 2012
Date of revision:
Handle: RePEc:red:sed012:1176

Contact details of provider:
Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Fax: 1-314-444-8731
Email:
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC

Related research

Keywords:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Mele, Antonio, 2014. "Repeated moral hazard and recursive Lagrangeans," Journal of Economic Dynamics and Control, Elsevier, vol. 42(C), pages 69-85.
  2. Khan, A. & Ravikumar, B., 1997. "Growth and Risk-Sharing with Private Information," Working Papers 97-13, University of Iowa, Department of Economics.
  3. Gian Luca Clementi & Thomas F. Cooley & Sonia DiGiannatale, 2009. "A Theory of Firm Decline," Working Papers 09-05, New York University, Leonard N. Stern School of Business, Department of Economics.
  4. Matthias Doepke & Robert M. Townsend, 2002. "Dynamic Mechanism Design With Hidden Income and Hidden Actions," UCLA Economics Working Papers 818, UCLA Department of Economics.
  5. Spear, Stephen E & Srivastava, Sanjay, 1987. "On Repeated Moral Hazard with Discounting," Review of Economic Studies, Wiley Blackwell, vol. 54(4), pages 599-617, October.
  6. Espino, Emilio, 2004. "On Ramsey's Conjecture: Efficient Allocations in the Neoclassical Growth Model with Private Information," Economics Series 154, Institute for Advanced Studies.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:red:sed012:1176. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.