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

Author

Listed:
  • Francisco Buera

    (UCLA)

  • Yongseok Shin

    (WUSTL)

Abstract

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.

Suggested Citation

  • Francisco Buera & Yongseok Shin, 2010. "Self-Insurance vs. Self-Financing: A Welfare Analysis of the Persistence of Shocks," 2010 Meeting Papers 1153, Society for Economic Dynamics.
    • Handle: RePEc:red:sed010:1153
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