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Growth and Risk-Sharing with Private Information

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  • Aubhik Khan

    (University of Virginia)

  • B. Ravikumar

    (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. Numerical examples indicate the contracts are relatively efficient and that the growth effects of private information are small.

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File URL: http://128.118.178.162/eps/mac/papers/9802/9802003.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 9802003.

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Length: 31 pages
Date of creation: 04 Feb 1998
Date of revision:
Handle: RePEc:wpa:wuwpma:9802003

Note: Type of Document - PDF; prepared on Acrobat PDF; pages: 31 ; figures: included
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Web page: http://128.118.178.162

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Keywords: growth; long-term contracts; risk-sharing;

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