Incentive Constrained Risk Sharing, Segmentation, and Asset Pricing

Bruno Biais, Johan Hombert and Pierre-Olivier Weill

No 23986, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Incentive problems make securities’ payoffs imperfectly pledgeable, limiting agents’ ability to issue liabilities. We analyze the equilibrium consequences of such endogenous incompleteness in a dynamic exchange economy. Because markets are endogenously incomplete, agents have different intertemporal marginal rates of substitution, so that they value assets differently. Consequently, agents hold different portfolios. This leads to endogenous markets segmentation, which we characterize with Optimal Trans-port methods. Moreover, there is a basis going always in the same direction: the price of a security is lower than that of replicating portfolios of long positions. Finally, equilibrium expected returns are concave in factor loadings.

JEL-codes: D5 G12 (search for similar items in EconPapers)
Date: 2017-11
New Economics Papers: this item is included in nep-mic
Note: AP EFG
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Citations: View citations in EconPapers (5)

Published as Bruno Biais & Johan Hombert & Pierre-Olivier Weill, 2021. "Incentive Constrained Risk Sharing, Segmentation, and Asset Pricing," American Economic Review, vol 111(11), pages 3575-3610.

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Related works:
Journal Article: Incentive Constrained Risk Sharing, Segmentation, and Asset Pricing (2021)
Working Paper: Incentive Constrained Risk Sharing, Segmentation, and Asset Pricing (2019)
Working Paper: Incentive Constrained Risk Sharing, Segmentation, and Asset Pricing (2017)
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