Essays On Risk Sharing In Economies With Limited Commitment
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Essays On Risk Sharing In Economies With Limited Commitment
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Author : Hanno Lustig
language : en
Publisher:
Release Date : 2002
Essays On Risk Sharing In Economies With Limited Commitment written by Hanno Lustig and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2002 with categories.
Essays On Private Information In Village Economies
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Author : Naoki Nishimura
language : en
Publisher:
Release Date : 2019
Essays On Private Information In Village Economies written by Naoki Nishimura and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
This dissertation consists of three chapters related to informal risk sharing, social obligations, and the information asymmetries in village economies. In the first two chapters, I show that local communities do not assess the economic conditions of households solely based on per capita income or consumption, and that income-hiding seems to be a prevalent feature of Bangladeshi villages. In the third chapter, I develop a risk-sharing model with information asymmetry between the agents, and I test if the model better explains the characteristics of consumption path observed in the data from Indian villages. More specifically, the first chapter looks at how local communities assess the economic conditions of villagers. The motive for this work comes from an observation in rural Bangladesh that income measured in surveys and economic conditions as perceived by local communities do not correlate highly with each other. I consider two potential causes of this gap. The first possible cause is that local communities assess villagers' economic conditions solely based on income, but there is some noise-factor causing this mismatch. Such noise could be caused by local informants manipulating the rating procedure (sometimes referred to as elite capture), a disturbance that the local communities may not care about (such as measurement error of income or transitory income shock), or an information asymmetry between the econometrician who collected the data and the local informant. The second possible cause of the gap is that villagers think factors other than income are important. I discuss these possibilities using survey data from Bangladeshi villages, in which local informants rated and categorized the households in each village into five groups (very poor to rich). The advantage of this data set is that the data collected in these surveys was not directly used for a poverty-targeted program. Household ratings are collected for use in stratified sampling, and thus there was little incentive for the local informants to manipulate this rating (which is generally considered to be the major caveat of the community-based approaches). I find that when local communities assess villagers' economic conditions, they put different weights on each variable than those estimated by income regression. For example, even after controlling for per capita income, households with more than one family member, more highly-educated adults in their productive years (18-64 years old), household heads engaged in the service sector, more land ownership, more capital holdings, and migrant members are considered to be rich. This chapter is important because it provides an extension of the literature on the local concept of poverty. This study aims to add to that evidence by examining how local leaders and households subjectively evaluate the economic conditions of other households in the village using a data set that is free from the bias of elite capture. The second chapter looks at microfinance (MF) and income-hiding. Generally, wealthier households with alternative financial sources have been less likely to take MF loans due to the high monetary and administrative cost. Therefore, MF loans may be an appropriate tool for borrowers to signal to their neighbors that they are poor, thereby decreasing their expected contribution to public goods. I construct a costly falsification model in which MF borrowers enjoy lower income hiding costs. I use data from rural Bangladesh to test the proposition from this model that, ceteris paribus, MF borrowers hide more income than non-borrowers. I find that MF borrowers are judged to be poor by local leaders even after controlling for per capita income, land holdings, and other asset and demographic information. I also find evidence that MF borrowers increase their private consumption and disproportionally decrease their relative expenditure for social obligations like social events and religious purposes. This finding indicates that income-hiding within local communities is a prevalent phenomenon. In addition, this chapter studies the mechanism behind the impact of MF found in the literature. A series of impact evaluations of randomized controlled trials shows that MF borrowers substantially reduce their expenditure on social events (Banerjee et al., 2015a,b; Cr ́epon et al., 2015), and income hiding could be one possible explanation for this observed behavior. The third chapter looks at informal risk-sharing within villages. Although it is believed that villagers generally know their neighbors well, even very close relatives or friends do not know the household's exact income. I construct a dynamic risk-sharing model with two-sided private information (hereafter, called the "hidden-income model") in which two agents enter a risk-sharing contract, but each agent's own income is private information. First, I show the dynamic programming problem that derives the Pareto-efficient risk-sharing contract can be written in recursive and numerically solvable form. Using household data from rural India, I test which of the alternative model-predictions best fit the survey data: autarky, perfect risk-sharing, static and dynamic limited commitment, and the hidden income model. I find that the dynamic limited commitment model performs the best, while the private information model cannot solely explain the observed features of the consumption path. I also estimate the welfare effect of a counterfactual policy intervention to show the differences in consequences under different regimes. After the introduction of formal taxation, income-redistribution decreases welfare only in the hidden income model. This is because formal taxation increases incentives for households to hide their income. The inefficiency caused by this increased friction offsets the welfare effect of income-redistribution. This result shows that the policy effects could be quite different under different regimes, and it is important to understand the frictions within villages.
Essays In Microeconomic Theory And The Economics Of Networks
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Author : Yiqing Xing
language : en
Publisher:
Release Date : 2016
Essays In Microeconomic Theory And The Economics Of Networks written by Yiqing Xing and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.
This thesis consists of three essays in microeconomic theory and the economics of networks. Chapter 1 establishes a model in which agents first form risk-sharing pairs, and then repeatedly share income risks under limited commitment. Agents of different occupations differ in income autocorrelations, i.e. how their current incomes correlate with past ones. I show that agents with high autocorrelation are hard to share risks with. With endogenous matching, two equilibrium outcomes can occur: either 1) agents match positive assortatively, or 2) agents from different occupations do match together, but in order to sustain such matches, agents share risks unevenly favoring the relatively less autocorrelated. Either equilibrium features substantial inequality across occupations and low total welfare, compared to what would happen if a social planner could impose an optimal matching to agents. The interplay between matching and risk sharing can change our views on policies. For instance, uniform increases in everyone's low income levels (minimal wages) may hurt some agents. Increases in occupation-specific common income shocks could improve overall risk sharing and reduce inequality. My results are also robust to forms of heterogeneity other than income autocorrelations, such as heterogeneous opportunities to rematch or migrate. This model is among the first attempts to consider both partnership formation and subsequent interactions. I highlight the point that how a pair of agents interact (share risks in this case) does not only depend on the two of them, but also on their potential links to others, and how others interact. Such a framework has important policy implications because a policy can change how agents interact as well as whom they interact with. Without considering these effects, out policy evaluations could be inadequate. Chapter 2 (coauthored with Matt Jackson) is an online experiment to justify homophily, the tendency of people to interact with others that are similar to themselves, by the ease of coordination among agents with a similar cultural background. In particular, we examine whether people are better at predicting how others with similar cultural backgrounds will behave, compared to others with different cultural backgrounds. We also explore whether this translates into better coordination. The more than a thousand participants in our experiment mainly reside in two countries: India and the United States. Participants are paired to act in a simple coordination environment with multiple coordination outcomes. Participants from India are much more likely than participants from the U.S. to choose actions that lead to very unequal payoffs across the two subjects. We also find that, although participants residing in different countries tend to choose different actions, they do not seem to adjust their actions according to their opponents' place of residence. One explanation for this pattern is that participants have no idea about what their opponents would do when the opponents are from a different cultural background from them, and wrongly believe that their opponents will behave similarly to themselves. This explanation is consistent with the data when we explicitly elicit participants' beliefs about the opponents' behaviors. In sum, due to the accuracy of predicting each others' behaviors, interactions between people who share a similar cultural background leads to a larger likelihood of coordination, and a higher payoff on average. Chapter 3 (coauthored with Matt Jackson and Hugo Sonnenschein) models negotiations that determine not only an agreement's price, but also its content, which typically has many aspects. We model such negotiations and provide conditions under which negotiation leads to efficient outcomes, even in the face of substantial asymmetric information regarding the value of each aspect. With sufficient information about the overall potential surplus, if the set of offers that agents can make when negotiating is sufficiently rich, then negotiation leads the agents to efficient agreements in all equilibria. Furthermore, the same negotiation game works regardless of the statistical structure of information - in this sense, no omniscient "planner" or "mechanism designer" is required. The theory and examples explore the anatomy of negotiation and may shed light on why many situations with significant asymmetric information exhibit little inefficiency. This chapter is within my research agenda of better understanding the social costs of asymmetric information without an omniscient and empowered "mechanism designer". Such a designer plays a key role in the mechanism design literature, but frequently is absent in applications. This chapter asks the question that whether two agents come about on their own, negotiating in "free-forms", can achieve (near) efficiency. Another paper of mine, "Intermediated Implementation", (with Anqi Li) is along the same line of research. There we ask the question whether a social planner can implement target allocations through market intermediaries (e.g., firms in the labor market) with simple policies such as per unit fee, labor income tax, or quota system.
Essays On Macroeconomics And Monetary Economics
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Author : Fatih Tuluk
language : en
Publisher:
Release Date : 2016
Essays On Macroeconomics And Monetary Economics written by Fatih Tuluk and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with Electronic dissertations categories.
My essays that are captured in two chapters of my dissertation focus on shadow banking system, collateralized debt arrangement and monetary policy. The first chapter studies the role of shadow banking in the recent financial crisis, the relationship between shadow banking and traditional banking, and it investigates the monetary policy reaction to overcome the financial frictions associated with the scarcity of collateral or shortages of safe assets that naturally led to the liquidity constraints. On the other hand, the second chapter studies the role of housing as a collateral or as a medium of exchange and it explores how the private liquidity, in the context of home-equity loans, and public liquidity work together to overcome the limited commitment frictions. In the first chapter, a Lagos-Wright model with costly-state verification and delegated monitoring financial intermediation, and a risk-sharing framework of banking is constructed. Lack of memory and limited commitment imply collateralized credit arrangements. In contrast to the traditional banking system, shadow banking system is not subject to the capital requirements. The relative use of shadow funded credit versus traditional bank loans entails the advantages of working outside the oversight of the bank regulations, but drawbacks of having information and transactions cost in funding entrepreneurs. I have five main findings: First, an entrepreneurial credit can help address the need for collateral. Second, the shadow funded credit shifts from risky to safer borrowers and loan creation capacity of the shadow banking sector shrinks when the economic outlook gets worse. Third, the traditional bank can fulfill the role of providing credit that shadow banks had played before the crisis, but can do it only to a certain extent. Fourth, to the extent that collateral backed by entrepreneurial credit mitigates the limited commitment friction in the traditional banking sector, the optimal monetary policy shifts nominal interest rate towards zero lower bound. Lastly, the quantitative easing program can be welfare increasing by reinforcing the shadow funded credit versus traditional banking lending if the credit frictions in the shadow banking sector are sufficiently small. The second chapter studies the role of home-equity loan and government debt in an environment with financial frictions. I construct a Lagos-Wright model in which private transactions must be secured under limited commitment and lack of record-keeping. Housing can be useful to support credit since it serves as collateral. It also gives direct utility as shelter and serves as a medium of exchange when the economy is inefficient. I show that when there is no efficiency loss due to exchange of housing, posting collateral is not optimal since collateralizable wealth is limited. In the state of efficiency loss, the collateral might be useful and the asset therefore bears a liquidity premium. However, once collateral becomes scarce - as it did during the financial crisis- then it amplifies the frictions and the buyer trades the asset to make up for the weak incentives associated with collateral. I show that the world is always non-Ricardian and therefore government debt implies higher welfare. As well, government debt enhances the private debt to the extent that posting collateral is always optimal. In equilibrium, full pledgeability of private collateral, in addition to government debt, completely rules out the efficiency loss arising from exchange of asset. Money and private banks are introduced. I show that as inflation imposes a tax on consumption, interest rate on cash loans imposes a tax on housing collateral. Finally, an increase in inflation raises the housing price near Friedman Rule.
Risk Sharing And Consumption Insurance In Poor Urban Economies
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Author : Seife Dendir
language : en
Publisher:
Release Date : 2005
Risk Sharing And Consumption Insurance In Poor Urban Economies written by Seife Dendir and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005 with Consumption (Economics) categories.
Limited Commitment Social Control And Risk Sharing Coalitions In Village Economies
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Author : Juan Daniel Hernández
language : en
Publisher:
Release Date : 2023
Limited Commitment Social Control And Risk Sharing Coalitions In Village Economies written by Juan Daniel Hernández and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2023 with categories.
The need to insure against idiosyncratic income risk leads to the formation of risksharing groups in village economies where formal financial markets are absent. We develop a theoretical model to address the impact of limited commitment and social control on the extent of informal risk sharing when agents are induced to form such risk-sharing coalitions. Social control increases the prospect of future punishment of present defectors and thus mitigates the absence of commitment. A defection-proof core-partition exists, is unique and homophilic. Riskier societies may not be more segmented and may not pay a higher cost for insurance. A higher social control leads to a less segmented society but does not necessarily lead to a lower price for sharing risk. We provide evidence, based on data on Thai villages, that consumption smoothing conforms with our theoretical result of homophily-based coalitions and that social control contributes to less segmentation of a society.
Three Essays On Risk Saving And Migration In Low Income Economies
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Author : Weiping Chen
language : en
Publisher:
Release Date : 2003
Three Essays On Risk Saving And Migration In Low Income Economies written by Weiping Chen and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2003 with categories.
Essays In Financial Economics
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Author : Jinji Hao
language : en
Publisher:
Release Date : 2017
Essays In Financial Economics written by Jinji Hao and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with Electronic dissertations categories.
In the first chapter of my dissertation, I provide a novel framework -- the cumulant generating function (cgf) of the market risk on the positive half real line -- for studying the market risk which can be replicated by cross sections of index option prices in a model-free manner. Within this unifying framework, independent of the underlying price process, the VIX index measures the height of the cgf at one while the SVIX index proposed by Martin (2016) measures the convexity of the cgf over the interval [0, 2]. A tail index of the market risk, TIX, is proposed based on this framework which measures the tail decay rate of the distribution of market risk revealing the market perceptions of extreme risk. The change in TIX strongly predicts market returns both in and out of sample, with monthly R2 statistics of 3.33% and 6.15%, respectively, outperforming the popular return predictors in the literature.In the second chapter of my dissertation, I study a shadow banking system featuring collateral constraints to investigate the joint determination of haircut and interest rate, as well as its interaction with collateral asset pricing. The banks with limited commitment serve the households' need for consumption smoothing by taking deposits with a risky asset used as collateral and pursue the maximal leverage returns. In a collateral equilibrium as in Geanakoplos (1997, 2003), agents' marginal rates of substitution are equalized only in non-default states, only the deposit contract with the highest liquidity value per unit of collateral is traded, and the risky asset price is boosted such that banks earn zero profit. Relative to the traditional banking with full commitment, banks are better off if they are endowed with the collateral asset while households are strictly worse off. I also find (i) higher households' risky asset endowment leads to a higher asset price because a stronger saving motive creates a scarcity of collateral, while higher banks' collateral endowment has the opposite effects; (ii) for the quality of collateral, the higher asset price resulting from an upside improvement simply leads to a higher haircut with the interest rate unchanged since lenders do not care about upside risk; on the contrary, for lenders with a high risk aversion, a downside improvement of quality decreases the asset price because it alleviates the tension of imperfect risk sharing and, therefore, reduces the collateral value, but everything goes in opposite directions for a low risk aversion; (iii) collateral use exhibits a diminishing return to scale in the amount of borrowing supported.In the third chapter of my dissertation, I study specifically the implications of disaster concerns about financial intermediaries for stock market returns. Manela and Moreira (2017) develop a text-base measure of disaster concerns using phrase counts of front-page articles of the Wall Street Journal. While they do not find evidence for return predictability at the monthly horizon and, in particular, at any horizon for the financial intermediation category of this measure, I document that an increase in the news coverage of intermediation is followed by lower stock market returns next month in the sample since the World War II. The effect is economically large with a one-standard-deviation increase in the coverage associated with an 44 basis point decrease in next month's stock market excess return.
Risk Sharing In Village Economies Revisited
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Author : Tessa Bold
language : en
Publisher:
Release Date : 2016
Risk Sharing In Village Economies Revisited written by Tessa Bold and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with Insurance categories.
The limited commitment model is popular for the analysis of village risk-sharing as it captures both the observed partial character of insurance and the presumption that incomes are well observed but formal contracts absent in rural communities. We study dynamic limited commitment when individuals can form new, smaller coalitions after reneging in a larger group, which makes group size an endogenous outcome of the model. This is important for theoretical consistency, but also because we show that enforcement constraints, which typically bind only in case of positive income shocks, counterfactually imply a stronger response of consumption to income increases than to income losses in village-size insurance groups. In small groups, in contrast, the response of consumption to income increases and declines is symmetric. The results show how equilibrium group sizes are much smaller than the typical village, bringing the predicted consumption process in line with the data. We thus argue that allowing for endogenous group formation in the dynamic limited commitment model strongly improves its predictive power for analyzing risk-sharing in village economies.
Essays In Banking And Risk Management
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Author : James Ian Vickery
language : en
Publisher:
Release Date : 2004
Essays In Banking And Risk Management written by James Ian Vickery and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2004 with categories.
(Cont.) Risk Management have begun implementing strategies to provide commodity price and weather insurance in the developing world. In Chapter 3 (joint with Professor Rob Townsend from the University of Chicago), we examine how shocks to the price of rubber, an important but volatile Thai export commodity, affect the income, consumption and intra-household remittances of rural Thai households. In contrast to related work on rainfall shocks, we find rubber price innovations are not well insured or smoothed--remittances, borrowing and saving play only small roles in ameliorating the effect of these shocks on the consumption of affected households. We argue that differences in the relative persistence of the two types of shocks provide a plausible reason for these divergent findings, drawing on the literature on buffer stock models of consumption behavior and risk sharing with limited commitment.