Risk Sharing Capacity: Markets versus Households

ETH Risk Center – Working Paper Series ETH-RC-13-006

22 Pages Posted: 10 Jan 2014

See all articles by Hans Gersbach

Hans Gersbach

ETH Zurich - CER-ETH -Center of Economic Reseaarch; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Hans H. Haller

Virginia Polytechnic Institute & State University - Department of Economics

Date Written: April 2013

Abstract

We introduce uncertainty in our general equilibrium model with multi-member groups, following the classical state-space approach of Arrow-Debreu. A host of new interesting economic issues emerge. First, risk averse agents can attempt to insure themselves through markets or through mutual insurance within a multi-member group, say a household, by pooling resources within the group. Which insurance mechanism is chosen and to which extent the mechanisms substitute or complement each other is an open question. Second, one may ask more specifically what is the role of social groups for risk sharing and risk allocation when agents face idiosyncratic or aggregate risk. Third, does a suitable combination of social group formation and contingent commodity markets yield efficient risk allocations? We present a series of examples that shed some light on these issues.

Keywords: Household Behavior, Risk Allocation, General Equilibrium

JEL Classification: D13, D51, D61, D70, D80

Suggested Citation

Gersbach, Hans and Haller, Hans H., Risk Sharing Capacity: Markets versus Households (April 2013). ETH Risk Center – Working Paper Series ETH-RC-13-006. Available at SSRN: https://ssrn.com/abstract=2376375 or http://dx.doi.org/10.2139/ssrn.2376375

Hans Gersbach (Contact Author)

ETH Zurich - CER-ETH -Center of Economic Reseaarch ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland
+41 44 632 82 80 (Phone)
+41 44 632 18 30 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Hans H. Haller

Virginia Polytechnic Institute & State University - Department of Economics ( email )

3021 Pamplin Hall
Blacksburg, VA 24061
United States
540-231-7591 (Phone)
540-231-5097 (Fax)

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