Seminarios académicos y conferencias
"Local Risk Sharing with Hidden Income" (coautorado con Johannes Gierlinger)
28 Agosto 2018 - 17:00
Sala 209, Facultad de Ciencias Económicas y Administrativas UC
Abstract: We analyze a model of dynamic insurance with hidden income and local contracts. Households may share risk only with their direct neighbors along a fixed and exogenous network of connections. Therefore, while indirect neighbors cannot directly share a household’s risk, they may nonetheless lower the cost of providing truth-telling incentives in the future, thus improving overall levels of insurance. We argue that the diffusion of information along the network determines the shape of optimal contracts and the type of stylized patterns of dynamic dependence in consumption. We provide testable predictions on how the location of an income shock affects current and future consumption throughout the network, and we test these unique dynamic relationships using data on village economies in rural Bolivia.