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Incentive problems and the pattern of international risk sharing

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  • Eijffinger, Sylvester
  • Wagner, Wolf

Abstract

This paper analyzes the implications of moral hazard and a lack of contract enforcement for risk sharing across countries and regions. We demonstrate that both incentive problems can considerably restrict efficient risk sharing. However, we show that the cross-sectional risk sharing component is much more affected than the intertemporal component. We argue that this may help to explain several stylized facts of international risk sharing, such as the low degree of insurance against permanent shocks.

Suggested Citation

  • Eijffinger, Sylvester & Wagner, Wolf, 2010. "Incentive problems and the pattern of international risk sharing," Journal of International Money and Finance, Elsevier, vol. 29(7), pages 1206-1225, November.
    • Handle: RePEc:eee:jimfin:v:29:y:2010:i:7:p:1206-1225
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