Self-Insurance vs. Self-Financing: A Welfare Analysis of the Persistence of Shocks

Francisco Buera and Yongseok Shin

No 1153, 2010 Meeting Papers from Society for Economic Dynamics

Abstract: market frictions over time with self-financing. With intermediate levels of frictions in the capital market, welfare costs of market incompleteness have a U shape against the persistence of idiosyncratic shocks. The right arm of the U reflects the difficulty of self-insurance against very persistent shocks; and the left arm, the difficulty of overcoming capital market frictions through self-financing when entrepreneurial opportunities are short-lived.

Date: 2010
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Journal Article: Self-insurance vs. self-financing: A welfare analysis of the persistence of shocks (2011)
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