IDEAS home Printed from https://ideas.repec.org/p/nwu/cmsems/1235.html
   My bibliography  Save this paper

Risk Sharing and the Dynamics of Inequality

Author

Listed:
  • Ezra Friedman

Abstract

Risk averse agents who engage in risky production activities frequently participate in some sort of arrangement to share risk. When there are issues of moral hazard, optimal risk sharing typically involves spreading risk over time as well as over space. Agents who suffer bad outcomes can spread risk over time by borrowing against future earnings to supplement present consumption. In this paper I analyze the effect that such intertemporal risk sharing has on the distribution of consumption and utility. I find that in most cases intertemporal risk sharing leads to a spreading of the utility weight distribution. Under the optimal contract agents who suffer negative shocks respond by working harder and bearing more risk, exposing them to the likelihood of more negative shocks.

Suggested Citation

  • Ezra Friedman, 1998. "Risk Sharing and the Dynamics of Inequality," Discussion Papers 1235, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  • Handle: RePEc:nwu:cmsems:1235
    as

    Download full text from publisher

    File URL: http://www.kellogg.northwestern.edu/research/math/papers/1235.pdf
    File Function: main text
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mele, Antonio, 2014. "Repeated moral hazard and recursive Lagrangeans," Journal of Economic Dynamics and Control, Elsevier, vol. 42(C), pages 69-85.
    2. Matthias Messner & Nicola Pavoni, 2004. "On the Recursive Saddle Point Method," Working Papers 255, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    3. Matthias Messner & Nicola Pavoni, 2016. "On the Recursive Saddle Point Method," Dynamic Games and Applications, Springer, vol. 6(2), pages 161-173, June.
    4. repec:eee:jetheo:v:182:y:2019:i:c:p:402-432 is not listed on IDEAS
    5. Ramon Marimon, 2011. "New Results in Recursive Contract Theory," 2011 Meeting Papers 752, Society for Economic Dynamics.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nwu:cmsems:1235. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Fran Walker) The email address of this maintainer does not seem to be valid anymore. Please ask Fran Walker to update the entry or send us the correct email address. General contact details of provider: http://edirc.repec.org/data/cmnwuus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.