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Risk sharing by households within and across regions and industries

  • Hess, Gregory D.
  • Shin, Kwanho

Cochrane (1991) and Mace (1991) test if risk sharing across households is complete in the sense that household consumption moves one-for-one with aggregate consumption. In their studies the source of income risk is idiosyncratic, and agents can share risk across the entire economy. Using a sample of households from the Panel Study on Income Dynamics (PSID), we explore whether individuals diversify the risk associated within their industries and regions, as well as across industries and regions. We find that there is stronger evidence of within region and industry risk sharing than across region and industry risk sharing. In neither case, however, is the risk sharing complete.

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

Volume (Year): 45 (2000)
Issue (Month): 3 (June)
Pages: 533-560

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Handle: RePEc:eee:moneco:v:45:y:2000:i:3:p:533-560
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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  13. Nelson, Julie A, 1994. "On Testing for Full Insurance Using Consumer Expenditure Survey Data: Comment," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 384-94, April.
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  18. Baxter, Marianne & Jermann, Urban J, 1997. "The International Diversification Puzzle Is Worse Than You Think," American Economic Review, American Economic Association, vol. 87(1), pages 170-80, March.
  19. Gregory D. Hess & Kwanho Shin, 1999. "Risk sharing of disaggregate macroeconomic and idiosyncratic shocks," Working Paper 9915, Federal Reserve Bank of Cleveland.
  20. Joseph G. Altonji & Aloysius Siow, 1986. "Testing the Response of Consumption to Income Changes with (Noisy) PanelData," NBER Working Papers 2012, National Bureau of Economic Research, Inc.
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  23. Hayashi, Fumio & Altonji, Joseph & Kotlikoff, Laurence, 1996. "Risk-Sharing between and within Families," Econometrica, Econometric Society, vol. 64(2), pages 261-94, March.
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  25. van Wincoop, Eric, 1995. "Regional risksharing," European Economic Review, Elsevier, vol. 39(8), pages 1545-1567, October.
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