World Income Components: Measuring and Exploiting Risk-Sharing Opportunities

Stefano G. Athanasoulis and Robert Shiller

American Economic Review, 2001, vol. 91, issue 4, 1031-1054

Abstract: A method is constructed for decomposing the variance of changes in incomes in the world into components, to indicate the most important risk-sharing opportunities among people of the world. A constant absolute risk premium (CARP) model, an intertemporal general-equilibrium model of the world, is presented to permit optimal contract design. For a contract designer maximizing a social welfare function, the optimal contracts maximize the equilibrium world real interest rate. Securities are defined in terms of eigenvectors of a transformed variance matrix. The method is applied using Penn World Table data on the G-7 countries, 1950-92.

JEL-codes: F40 G15 (search for similar items in EconPapers)
Date: 2001
Note: DOI: 10.1257/aer.91.4.1031
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Citations: View citations in EconPapers (30)

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Working Paper: World Income Components: Measuring and Exploiting Risk-Sharing Opportunities (1999)
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