Optimal Risk—Sharing Policies
In: The American economist: journal of the International Honor Society in Economics, Omicron Delta Epsilon, Band 30, Heft 2, S. 37-40
ISSN: 2328-1235
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In: The American economist: journal of the International Honor Society in Economics, Omicron Delta Epsilon, Band 30, Heft 2, S. 37-40
ISSN: 2328-1235
We investigate the properties of financial networks that allow to optimally solve the trade-off between higher risk-sharing and contagion. With continuous shock distributions, the optimum features the segmentation of the system of firms into disjoint components, with uniform exposure within them. With positive mass on some large shocks, it is instead optimal to modulate the exposure level to different firms. When firms are heterogeneous in the risk characteristics of their shocks, optimality requires homogeneous components, while with heterogeneity in size, an irrelevance result holds. Also, the incentives of firms to establish linkages may not be aligned with social optimality. ; The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.
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In: American economic review, Band 97, Heft 2, S. 70-74
ISSN: 1944-7981
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Working paper
In: International Risk Sharing in Emerging Economies. International Finance. Wiley-Blackwell, Forthcoming
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In: Journal of monetary economics, Band 138, S. 31-49
In: Discussion paper series 8643
In: International macroeconomics
"We estimate channels of international risk sharing between European Monetary Union (EMU), European Union, and other OECD countries 1992-2007. We focus on risk sharing through savings, factor income flows, and capital gains. Risk sharing through factor income and capital gains was close to zero before 1999 but has increased since then. Risk sharing from capital gains, at about 6 percent, is higher than risk sharing from factor income flows for European Union countries and OECD countries. Risk sharing from factor income flows is higher for Euro zone countries, at 14 percent, reflecting increased international asset and liability holdings in the Euro area"--National Bureau of Economic Research web site
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In: NBER working paper series 15719
"We develop a model of informal risk-sharing in social networks, where relationships between individuals can be used as social collateral to enforce insurance payments. We characterize incentive compatible risk-sharing arrangements and obtain two results. (1) The degree of informal insurance is governed by the expansiveness of the network, measured by the number of connections that groups of agents have with the rest of the community, relative to group size. Two-dimensional networks, where people have connections in multiple directions, are sufficiently expansive to allow very good risk-sharing. We show that social networks in Peruvian villages satisfy this dimensionality property; thus, our model can explain Townsend's (1994) puzzling observation that village communities often exhibit close to full insurance. (2) In second-best arrangements, agents organize in endogenous "risk-sharing islands" in the network, where shocks are shared fully within, but imperfectly across islands. As a result, network based risk-sharing is local: socially closer agents insure each other more"--National Bureau of Economic Research web site
In: CESifo Working Paper Series No. 4715
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In: FRB International Finance Discussion Paper No. 1110
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In: European Stability Mechanism Working Paper No. 17
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In: CESifo Working Paper Series No. 1705
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In: The Canadian journal of economics: the journal of the Canadian Economics Association = Revue canadienne d'économique, Band 45, Heft 2, S. 472-492
ISSN: 1540-5982
Abstract We estimate channels of international risk sharing between European Monetary Union (EMU), European Union, and other OECD countries, 1992–2007. We focus on risk sharing through savings, factor income flows, and capital gains. Risk sharing through factor income and capital gains was close to zero before 1999 but has increased since then. Risk sharing from capital gains, at about 6%, is higher than risk sharing from factor income flows for European Union countries and OECD countries. Risk sharing from factor income flows is higher for euro zone countries, at 14%, reflecting increased international asset and liability holdings in the euro area.
In: CESifo working paper series 4715
In: Empirical and theoretical methods
We investigate the trade-off between the risk-sharing gains enjoyed by more interconnected firms and the costs resulting from an increased risk exposure. We find that when the shock distribution displays "fat" tails, extreme segmentation into small components is optimal, while minimal segmentation and high density of connections are optimal when the distribution exhibits "thin" tails. For less regular distributions, intermediate degrees of segmentation and sparser connections are optimal. Also, if firms are heterogeneous, optimality requires perfect assortativity in a component. In general, however, a conflict arises between efficiency and pairwise stability, due to a "size externality" not internalized by firms.