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Non-commitment and savings in dynamic risk-sharing contracts

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Author Info
Karine Gobert ()
Michel Poitevin ()

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Abstract

We characterize the solution to a dynamic model of risk sharing under non-commitment when saving is possible. Savings can play two important roles. First savings can be used to smooth aggregate consumption across different periods. Second, when savings are observable, they can act as a collateral that can be seized in the case of default. This relaxes the non-commitment constraint. When the aggregate income is fixed or when one of the agent is risk neutral, the allocation tends to first-best consumption. When one of the agent is risk neutral, this convergence occurs in an expected finite number of periods. Copyright Springer-Verlag Berlin/Heidelberg 2006

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File URL: http://hdl.handle.net/10.1007/s00199-005-0624-7
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Publisher Info
Article provided by Springer in its journal Economic Theory.

Volume (Year): 28 (2006)
Issue (Month): 2 (06)
Pages: 357-372
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Handle: RePEc:spr:joecth:v:28:y:2006:i:2:p:357-372

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Related research
Keywords: Dynamic contracts; Risk sharing; Non-commitment; Savings.;

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  1. Zaki Wahhaj, 2008. "Social Norms and Individual Savings in the Context of Informal Insurance," CEDI Discussion Paper Series 08-20, Centre for Economic Development and Institutions(CEDI), Brunel University. [Downloadable!]
  2. Karine Gobert, 2001. "Capital Structure and Risk Management," CIRANO Working Papers 2001s-51, CIRANO. [Downloadable!]
  3. Ethan Ligon & Jonathan P. Thomas & Tim Worrall, 2000. "Mutual Insurance, Individual Savings and Limited Commitment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(2), pages 216-246, April. [Downloadable!] (restricted)
    Other versions:
  4. Ethan Ligon & Jonathan P. Thomas & Tim Worrall, 1997. "Informal Insurance Arrangements in Village Economies," Keele Department of Economics Discussion Papers (1995-2001) 97/08, Department of Economics, Keele University, revised Oct 2000. [Downloadable!]
    Other versions:
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