Consumption Risk Sharing with Private Information and Limited Enforcement
Marek Kapicka and
Paul Klein ()
Review of Economic Dynamics, 2017, vol. 23, 170-190
We study consumption risk sharing when individual income shocks are persistent and not publicly observable, and individuals can default on contracts at the price of financial autarky. We find that, in contrast to a model where the only friction is limited enforcement, our model has observable implications that are similar to those of an Aiyagari (1994) self-insurance model and therefore broadly consistent with empirical observations. However, some of the implied effects of changes in policy or the economic environment are noticeably different in our model compared to self-insurance. (Copyright: Elsevier)
Keywords: Consumption insurance; Private information; Limited enforcement (search for similar items in EconPapers)
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Working Paper: Consumption Risk Sharing with Private Information and Limited Enforcement (2015)
Working Paper: Consumption risk sharing under private information when earnings are persistent (2011)
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