Money and Insurance in a Turnpike Environment

Andreas Hornstein and Per Krusell

Economic Theory, 1993, vol. 3, issue 1, 19-34

Abstract: We study the effects of introducing a feasible insurance market into the spatial separation model of money described in Mitsui and Watanabe (1989). We show that the insurance contract may or may not drive out money. We also show that, depending on the degree of risk aversion, the additional market can reduce welfare for all agents, increase welfare for all agents, or increase welfare for some agents and reduce it for others.

Date: 1993
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