Efficient Risk Sharing with Limited Commitment and Storage

Sarolta Laczó
Authors registered in the RePEc Author Service: Arpad J. Abraham () and Sarolta Laczó ()

No 697, Working Papers from Barcelona School of Economics

Abstract: We extend the model of risk sharing with limited commitment (Kocherlakota, 1996) by introducing both a public and a private (non-contractible and/or non-observable) storage technology. Positive public storage relaxes future participation constraints and may hence improve risk sharing, contrary to the case where hidden income or effort is the deep friction. The characteristics of constrained-efficient allocations crucially depend on the storage technology's return. In the long run, if the return on storage is (i) moderately high, both assets and the consumption distribution may remain time-varying; (ii) sufficiently high, assets converge almost surely to a constant and the consumption distribution is time-invariant; (iii) equal to agents' discount rate, perfect risk sharing is self-enforcing. Agents never have an incentive to use their private storage technology, i.e., Euler inequalities are always satisfied, at the constrained-efficient allocation of our model, while this is not the case without optimal public asset accumulation.

Keywords: risk sharing; limited commitment; hidden storage; dynamic contracts (search for similar items in EconPapers)
JEL-codes: E20 (search for similar items in EconPapers)
Date: 2015-09
New Economics Papers: this item is included in nep-cta, nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://bw.bse.eu/wp-content/uploads/2015/09/697-file.pdf (application/pdf)

Related works:
Journal Article: Efficient Risk Sharing with Limited Commitment and Storage (2018)
Working Paper: Efficient Risk Sharing with Limited Commitment and Storage (2016)
Working Paper: Efficient risk sharing with limited commitment and storage (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:697

Access Statistics for this paper

More papers in Working Papers from Barcelona School of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Bruno Guallar ().