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The insurance role of the firm

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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 firms 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 firms shockspassed 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," EIEF Working Papers Series 2001, Einaudi Institute for Economics and Finance (EIEF), revised Jan 2020.
    • Handle: RePEc:eie:wpaper:2001
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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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    5. Vincenzo Pezone, 2023. "The Real Effects of Judicial Enforcement," Review of Finance, European Finance Association, vol. 27(3), pages 889-933.

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    More about this item

    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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