The Limits to Local Insurance

Pau Milán and Johannes Gierlinger

No 1293, Working Papers from Barcelona School of Economics

Abstract: We study decentralized insurance when multiple risks are payoff-relevant, but each agent may only trade a (possibly different) subset of risks. Unless (at least) one agent can trade every risk, insurance markets remain incomplete, and the economy is not resilient to worst-case events. We also identify spill overs in any feasible allocation: others' inability to trade some risks restricts an agent's resilience to joint realizations. Unless an agent can trade a superset of i's risks, agent i is not resilient to them. In an application, we model constraints as risk-sharing networks and measure resilience in a Malawian village.

Keywords: networks; risk sharing; incomplete markets; market insurance (search for similar items in EconPapers)
JEL-codes: D11 D52 D53 D85 G52 (search for similar items in EconPapers)
Date: 2021-10
New Economics Papers: this item is included in nep-net and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:1293

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