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Self-Insurance vs. Self-Financing: A Welfare Analysis of the Persistence of Shocks

  • Francisco Buera

    (UCLA)

  • Yongseok Shin

    (WUSTL)

market frictions over time with self-financing. With intermediate levels of frictions in the capital market, welfare costs of market incompleteness have a U shape against the persistence of idiosyncratic shocks. The right arm of the U reflects the difficulty of self-insurance against very persistent shocks; and the left arm, the difficulty of overcoming capital market frictions through self-financing when entrepreneurial opportunities are short-lived.

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Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 1153.

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Date of creation: 2010
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Handle: RePEc:red:sed010:1153
Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Fax: 1-314-444-8731
Web page: http://www.EconomicDynamics.org/society.htm
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