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The insurance role of the firm

Author

Listed:
  • Luigi Guiso

    (EIEF)

  • Luigi Pistaferri

    (Stanford University)

Abstract

We review the recent literature on the risk-sharing role of the firm. We provide a framework for studying risk sharing between workers and firm owners vis-à-vis firm's specific shocks of different nature. We show how this framework can be taken to the data to provide estimates of the extent of insurance within the firm. Estimates from a large number of Western countries strongly support the view that in capitalist economies the firm is a large albeit far from complete wage insurance instrument. We quantify the welfare benefits of firm-provided wage insurance, show evidence on how workers react to firm's shocks passed through wages, and discuss the future role of the firm as a wage insurance provider.

Suggested Citation

  • Luigi Guiso & Luigi Pistaferri, 2020. "The insurance role of the firm," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 45(1), pages 1-23, March.
    • Handle: RePEc:pal:genrir:v:45:y:2020:i:1:d:10.1057_s10713-019-00045-9
    DOI: 10.1057/s10713-019-00045-9
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    Cited by:

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    2. Mahlstedt, Robert & Weber, Rüdiger, 2020. "Risk Sharing Within and Outside the Firm: The Disparate Effects of Wrongful Discharge Laws on Expected Stock Returns," IZA Discussion Papers 13941, Institute of Labor Economics (IZA).
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    More about this item

    Keywords

    Wage insurance; Firm insurance role; Background risk;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • G52 - Financial Economics - - Household Finance - - - Insurance

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