IDEAS home Printed from https://ideas.repec.org/p/lmu/muenar/19524.html
   My bibliography  Save this paper

Multiplier effects in economies with missing risk markets

Author

Listed:
  • Illing, Gerhard

Abstract

The paper analyses the impact of pecuniary externalities in a two-sector economy with an incomplete market structure. Agents in each sector choose their proportion of risky investment. Sector specific risks are assumed to be perfectly negatively correlated. It is shown that the economy is more volatile if risk markets do not exist. With a complete set of risk markets, shocks in one sector will be dampened on the aggregate level. In contrast, when risk markets are absent, pecuniary externalities arising from higher risky investment in one sector can create feedback effects in the other sector. When agents are sufficiently risk averse (their coefficient of relative risk aversion being greater than one), an individually optimal response to the increased riskiness of the price distribution will result in an even riskier price distribution: an increase in risky activity in one sector will lead to an increase in risky activity in the other sector, and this gives multiplier effects.

Suggested Citation

  • Illing, Gerhard, 1990. "Multiplier effects in economies with missing risk markets," Munich Reprints in Economics 19524, University of Munich, Department of Economics.
    • Handle: RePEc:lmu:muenar:19524
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lmu:muenar:19524. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tamilla Benkelberg (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.