Growth and Risk-Sharing with Private Information
FRB of Philadelphia Working Paper No. 99-12
Posted: 24 Feb 2000
Date Written: September 1999
The author examines the impact of incomplete risk-sharing on growth and welfare. The source of market incompleteness in the economy is private information: a household's idiosyncratic productivity shock is not observable by others. Risk-sharing between households occurs through long-term contracts with intermediaries. The author finds that incomplete risk-sharing tends to reduce the rate of growth relative to the complete risk-sharing benchmark. Numerical examples indicate that the welfare cost and the growth effect of private information are small.
JEL Classification: E20, O16
Suggested Citation: Suggested Citation