Mutual Insurance, Individual Savings and Limited Commitment

Ethan Ligon (), Jonathan Thomas () and Tim Worrall ()

Keele Department of Economics Discussion Papers (1995-2001) from Department of Economics, Keele University

Abstract: This paper examines a dynamic model of mutual insurance when households can also engage in self-insurance by storage. This mutual insurance is informal as it is assumed that there is no enforcement mechanism, so any mutual insurance arrangements must be self-enforcing. It is shown how consumption allocations satisfy a modified Euler condition and that an enhanced storage technology can either raise or diminish welfare. Furthermore it is shown that the ex ante transfers introduced into dynamic informal insurance models recently by Gauthier, Poitevin, and Gonz´alez (1997) are only used here in the first period, with the role of ex ante transfers being replaced by differential individual storage.

Keywords: limited commitment; risk sharing; storage (search for similar items in EconPapers)
JEL-codes: C61 C73 D90 E21 (search for similar items in EconPapers)
Date: Written
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Published in Review of Economic Dynamics, Vol. 3(2), April 2000, pages 216-246.

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