IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Implications of Endogenous Group Formation for Efficient Risk-Sharing

  • Tessa Bold
Registered author(s):

    This paper models the implications of endogenous group formation for efficient risk-sharing contracts in the dynamic limited commitment model.� Endogenising group formation requires that any risk-sharing arrangement is not only stable with respect to individual deviations but also with respect to deviations by sub-groups.� This requirement alters the central predictions of the dynamic limited commitment model for efficient bilateral risk-sharing.� Firstly, consumption of constrained agents depends on the previous history of shocks and the interaction of the history of shocks with the current income realizations of other constrained agents.� As a consequence, the efficient contract does not display amnesia.� Secondly, the covariance between current consumption and past income can take on negative values.� Based on the first result, we derive a formal test for the presence of endogenous group formation under limited commitment.� In addition, we show how this test can be extended to distinguish a limited commitment/perfect information environment from a full commitment/imperfect information environment empirically.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.economics.ox.ac.uk/materials/working_papers/paper387.pdf
    Download Restriction: no

    Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 387.

    as
    in new window

    Length:
    Date of creation: 01 Feb 2008
    Date of revision:
    Handle: RePEc:oxf:wpaper:387
    Contact details of provider: Postal: Manor Rd. Building, Oxford, OX1 3UQ
    Web page: http://www.economics.ox.ac.uk/
    Email:


    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Joseph Farrell and Eric Maskin., 1987. "Renegotiation in Repeated Games," Economics Working Papers 8759, University of California at Berkeley.
    2. Stefan Dercon & Joachim De Weerdt, 2002. "Risk-sharing networks and insurance against illness," CSAE Working Paper Series 2002-16, Centre for the Study of African Economies, University of Oxford.
    3. de Janvry, Alain & Sadoulet, Elisabeth & Winters, Paul C. & Murgai, Rinku, 2000. "Localized and Incomplete Mutual Insurance," Working Papers 12905, University of New England, School of Economics.
    4. Albert Marcet & Ramon Marimon, 1994. "Recursive contracts," Economics Working Papers 337, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 1998.
    5. Ethan Ligon & Jonathan P. Thomas & Tim Worrall, 2002. "Informal Insurance Arrangements with Limited Commitment: Theory and Evidence from Village Economies," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 209-244.
    6. Maurizio Mazzocco, 2007. "Household Intertemporal Behaviour: A Collective Characterization and a Test of Commitment," Review of Economic Studies, Oxford University Press, vol. 74(3), pages 857-895.
    7. Attanasio, Orazio & Rios-Rull, Jose-Victor, 2000. "Consumption smoothing in island economies: Can public insurance reduce welfare?," European Economic Review, Elsevier, vol. 44(7), pages 1225-1258, June.
    8. Dubois, Pierre, 2005. "Heterogeneity of Preferences, Limited Commitment and Coalitions Empirical Evidence on the Limits to Risk Sharing in Rural Pakistan," IDEI Working Papers 391, Institut d'Économie Industrielle (IDEI), Toulouse.
    9. Garance Genicot & Debraj Ray, 2003. "Group Formation in Risk-Sharing Arrangements," Review of Economic Studies, Oxford University Press, vol. 70(1), pages 87-113.
    10. Kocherlakota, Narayana R, 1996. "Implications of Efficient Risk Sharing without Commitment," Review of Economic Studies, Wiley Blackwell, vol. 63(4), pages 595-609, October.
    11. Thorsten Koeppl, 2004. "Differentiability of the Efficient Frontier when Commitment to Risk Sharing is Limited," Working Papers 1049, Queen's University, Department of Economics.
    12. Judd, Kenneth L., 1992. "Projection methods for solving aggregate growth models," Journal of Economic Theory, Elsevier, vol. 58(2), pages 410-452, December.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:oxf:wpaper:387. 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: (Caroline Wise)

    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.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 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.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.