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How big are potential welfare gains from international risksharing?

  • van Wincoop, Eric

There is extensive evidence that the degree of risksharing accomplished by international financial markets is low. Some have argued that this is the result of small potential benefits from risksharing. The gains from riskpooling that have been reported in the literature range from negligible to enormous. This paper documents to what extent the results are sensitive to the parameterization of preferences, and assumptions about the stochastic process and measurement of the endowment. We find that for realistic assumptions about the underlying factors, the potential gains from risksharing are quite sizable. For OECD countries they are equivalent to increases in tradables consumption in the range of 1.1 to 3.5% for a 50 year horizon, and 2.5 to 7.4% for a 100 year horizon

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 47 (1999)
Issue (Month): 1 (February)
Pages: 109-135

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Handle: RePEc:eee:inecon:v:47:y:1999:i:1:p:109-135
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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  5. Maurice Obstfeld, 1995. "Evaluating Risky Consumption Paths: The Role of Intertemporal Substitutability," NBER Technical Working Papers 0120, National Bureau of Economic Research, Inc.
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  13. Paolo Pesenti & Eric van Wincoop, 1996. "Do Nontraded Goods Explain the Home Bias Puzzle?," NBER Working Papers 5784, National Bureau of Economic Research, Inc.
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  17. Karen K. Lewis, 1996. "Consumption, Stock Returns, and the Gains from International Risk-Sharing," NBER Working Papers 5410, National Bureau of Economic Research, Inc.
  18. Jonathan D. Ostry & Carmen M. Reinhart, 1992. "Private Saving and Terms of Trade Shocks: Evidence from Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 39(3), pages 495-517, September.
  19. French, Kenneth R & Poterba, James M, 1991. "Investor Diversification and International Equity Markets," American Economic Review, American Economic Association, vol. 81(2), pages 222-26, May.
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