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Growth and risk-sharing with private information

  • Aubhik Khan
  • B. Ravikumar

The author examines the impact of incomplete risk-sharing on growth and welfare. The source of market incompleteness in the economy is private information: a household's idiosyncratic productivity shock is not observable by others. Risk-sharing between households occurs through long-term contracts with intermediaries. The author finds that incomplete risk-sharing tends to reduce the rate of growth relative to the complete risk-sharing benchmark. Numerical examples indicate that the welfare cost and the growth effect of private information are small.

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Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 99-12.

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Date of creation: 1999
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Handle: RePEc:fip:fedpwp:99-12
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  1. Maurice Obstfeld., 1993. "Risk-Taking, Global Diversification, and Growth," Center for International and Development Economics Research (CIDER) Working Papers C93-016, University of California at Berkeley.
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  9. Stefano Athanasoulis & Eric van Wincoop, 1997. "Growth uncertainty and risksharing," Staff Reports 30, Federal Reserve Bank of New York.
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  15. Andrew Atkeson & Robert E Lucas, 2010. "On Efficient Distribution with Private Information," Levine's Working Paper Archive 2179, David K. Levine.
  16. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1991. "International real business cycles," Staff Report 146, Federal Reserve Bank of Minneapolis.
  17. Michael B. Devereux & Gregor W. Smith, 1991. "International Risk Sharing and Economic Growth," Working Papers 829, Queen's University, Department of Economics.
  18. Stephen L. Parente & Edward C. Prescott, 1993. "Changes in the wealth of nations," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-16.
  19. Aubhik Khan & B. Ravikumar, 2002. "Enduring relationships in an economy with capital," Working Papers 02-5, Federal Reserve Bank of Philadelphia.
  20. Cochrane, John H, 1991. "A Simple Test of Consumption Insurance," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 957-76, October.
  21. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
  22. 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. Pushkar Maitra, 2001. "Is consumption smooth at the cost of volatile leisure? An investigation of rural India," Applied Economics, Taylor & Francis Journals, vol. 33(6), pages 727-734.
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