Risk sharing in the business cycle

Three non-Walrasian institutional arrangements are examined: 1. Since anticipated future wage streams do not collateralize loans in modern economies, borrowing constraints severely limit the possibility of consumption smoothing over time for a large fraction of the working population. 2. For workers...

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Bibliographic Details
Published in:European economic review 1992-04, Vol.36 (2), p.468-475
Main Authors: Danthine, Jean Pierre, Donaldson, John B.
Format: Article
Language:English
Subjects:
Business cycles
Business forecasts
Comparative studies
Correlation analysis
Economic conditions
Economic models
Economic theory
Effects
Manycountries
Output
Risk sharing
Social research
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Summary:Three non-Walrasian institutional arrangements are examined: 1. Since anticipated future wage streams do not collateralize loans in modern economies, borrowing constraints severely limit the possibility of consumption smoothing over time for a large fraction of the working population. 2. For workers in situations of permanent employment, income insurance can be expected in part to occur via the employer's wage policies. 3. For casual workers - those lacking a permanent employment relationship - public unemployment insurance programs constitute the only bulwark against extremes of income fluctuations. A compact statistical summary of the time series behavior of the US, Japanese, French, and German economies is provided. The proposed model indicates that the relative pattern of the output, consumption, and investment series for these 4 countries is quite similar.
ISSN:0014-2921
1873-572X
DOI:10.1016/0014-2921(92)90104-5