World Income Components: Measuring and Exploiting International Risk Sharing Opportunities

Robert J. Shiller () and Stefano G. Athanasoulis
Additional contact information
Stefano G. Athanasoulis: Iowa State University

No 1097, Cowles Foundation Discussion Papers from Cowles Foundation, Yale University

Abstract: We provide methods of decomposing the variance of world national incomes into components in such a way as to indicate the most important risk-sharing opportunities, and, therefore, the most important missing international risk markets to establish. One method uses a total variance reduction criterion, and identified risk-sharing opportunities in terms of eigenvectors of a variance matrix of residuals produced when country incomes are regressed on world income. Another method uses a mean-variance utility-maximizing criterion and identifies risk-sharing opportunities in terms of eigenvectors of a variance matrix of deviations of country incomes from their respective contract-year shares of world income. The two methods are applied using Summers-Heston [1991] data on national incomes for large countries 1950-1990, each using two different methods of estimating variances. While these data are not sufficient to provide accurate estimates of the requisite variance matrices of (transformed) national incomes, the results are suggestive of important new markets that could actually be created, and show that there may be large welfare gains to creating some of these markets.

Date: 1997-06
View list of references

Downloads: (external link)
http://cowles.econ.yale.edu/P/cd/d10b/d1097.pdf (application/pdf)

Related works:
Working Paper: World Income Components: Measuring and Exploiting International Risk Sharing Opportunities (1995)
Working Paper: World Income Components: Measuring and Exploting International Risk Sharing Opportunities (1995)
Working Paper: World Income Components: Measuring And Exploiting International Risk Sharing Opportunities (2004)
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: http://EconPapers.repec.org/RePEc:cwl:cwldpp:1097

Ordering information: This working paper can be ordered from
Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
The price is None.

Access Statistics for this paper

More papers in Cowles Foundation Discussion Papers from Cowles Foundation, Yale University
Address: Yale University, Box 208281, New Haven, CT 06520-8281 USA
Contact information at EDIRC.
Series data maintained by Glena Ames ().