Risk-sharing and crises. Global games of regime change with endogenous wealth

Rodolfo Campos

Journal of Economic Theory, 2013, vol. 148, issue 4, 1624-1658

Abstract: I add heterogeneous agents and risk-sharing opportunities to a global game of regime change. The novel insight is that when there is a risk-sharing motive, fundamentals drive not only individual behavior, but also select which individuals are more relevant for the likelihood of a crisis because of endogenous shifts in wealth. If attacking is relatively safe, attack behavior in the global game and trade in state-contingent assets feed back into each other. This feedback implies that multiple equilibria may exist even if signal noise becomes arbitrarily small. In addition, heterogeneity in risk-aversion within the population amplifies the influence of the state of the economy on the probability of a crisis.

Keywords: Global games; Risk-aversion; Heterogeneous agents; Risk-sharing; Financial crises; Strategic risk (search for similar items in EconPapers)
JEL-codes: D8 E3 G2 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0022053113000732
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Risk-Sharing and Crises. Global Games of Regime Change with Endogenous Wealth (2013)
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:eee:jetheo:v:148:y:2013:i:4:p:1624-1658

DOI: 10.1016/j.jet.2013.04.007

Access Statistics for this article

Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell

More articles in Journal of Economic Theory from Elsevier
Bibliographic data for series maintained by Catherine Liu ().