Consumption risk sharing with private information and limited enforcement

Tobias Broer, Marek Kapicka and Paul Klein
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Tobias Broer: Stockholm University, CEPR - Center for Economic Policy Research
Marek Kapicka: CERGE-EI - UK - Univerzita Karlova [Praha, Česká republika] = Charles University [Prague, Czech Republic]

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Abstract: 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.

Date: 2017-01
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Published in Review of Economic Dynamics, 2017, 23, pp.170-190. ⟨10.1016/j.red.2016.10.001⟩

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Related works:
Journal Article: Consumption Risk Sharing with Private Information and Limited Enforcement (2017)
Working Paper: Consumption Risk Sharing with Private Information and Limited Enforcement (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04490026

DOI: 10.1016/j.red.2016.10.001

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