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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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