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Growth and Risk-Sharing with Private Information

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Author Info

  • Khan, A.
  • Ravikumar, B.

    ()
    (University of Iowa)

Abstract

We examine the impact of incomplete risk-sharing on growth and welfare. The source of market incompleteness in our economy is private information: a household's idiosyncratic productivity shock is not observable by others. Risk-sharing between households occurs through long- term contracts with intermediaries. We find that incomplete risk-sharing tends to reduce the rate of growth relative to the complete risk-sharing benchmark.

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Bibliographic Info

Paper provided by University of Iowa, Department of Economics in its series Working Papers with number 97-13.

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Length: 25 pages
Date of creation: 1997
Date of revision:
Handle: RePEc:uia:iowaec:97-13

Contact details of provider:
Postal: University of Iowa, Department of Economics, Henry B. Tippie College of Business, Iowa City, Iowa 52242
Phone: (319) 335-0829
Fax: (319) 335-1956
Web page: http://tippie.uiowa.edu/economics/
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Keywords: RISK ; CONTRACTS;

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References

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  1. S. Rao Aiyagari & Stephen D. Williamson, 1997. "Credit in a Random Matching Model With Private Information," Game Theory and Information 9705005, EconWPA.
  2. Thomas, Jonathan & Worrall, Tim, 1990. "Income fluctuation and asymmetric information: An example of a repeated principal-agent problem," Journal of Economic Theory, Elsevier, vol. 51(2), pages 367-390, August.
  3. Harold L. Cole & Narayana R. Kocherlakota, 1999. "Efficient allocations with hidden income and hidden storage," Staff Report 238, Federal Reserve Bank of Minneapolis.
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  5. Stefano ATHANASOULIS & Eric VAN WINCOOP, 1997. "Growth Uncertainty And Risksharing," Economic Report 41, Iowa State University Department of Economics.
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  8. Christopher Phelan & Robert M Townsend, 2010. "Computing Multi-Period, Information Constrained Optima," Levine's Working Paper Archive 117, David K. Levine.
  9. Heaton, John & Lucas, Deborah J, 1996. "Evaluating the Effects of Incomplete Markets on Risk Sharing and Asset Pricing," Journal of Political Economy, University of Chicago Press, vol. 104(3), pages 443-87, June.
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  18. Harold L. Cole & Narayana R. Kocherlakota, 1997. "A microfoundation for incomplete security markets," Working Papers 577, Federal Reserve Bank of Minneapolis.
  19. Stephen L. Parente & Edward C. Prescott, 1993. "Changes in the wealth of nations," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-16.
  20. Levhari, David & Srinivasan, T N, 1969. "Optimal Savings under Uncertainty," Review of Economic Studies, Wiley Blackwell, vol. 36(106), pages 153-63, April.
  21. Michael B. Devereux & Gregor W. Smith, 1991. "International Risk Sharing and Economic Growth," Working Papers 829, Queen's University, Department of Economics.
  22. Aubhik Khan & B. Ravikumar, 2002. "Enduring relationships in an economy with capital," Working Papers 02-5, Federal Reserve Bank of Philadelphia.
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  25. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
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