Risk-sharing with limited commitment and storage

Preface

This website explains a risk-sharing model with storage under limited commitment, based on Ábrahám and Laczó (2018). After reviewing the model, I show how to numerically solve it, and then I demonstrate a simulation result to deep-dive into the model implications. Finally, I compare the result with the case without storage (as in Ligon, Thomas, and Worrall (2002)) and show that the possibility of storage can worsen households’ welfare.

For writing R codes in this website, I refer to the Matlab scripts in the replication package of Ábrahám and Laczó (2018) provided in the journal website. Any errors are my own, and if you find any mistakes or wrong statements, feel free to report it to me, through the GitHub’s issue page or via email.

Contact: Mizuhiro Suzuki (mizuhiro.suzuki@gmail.com)

GitHub repo: https://github.com/mizuhirosuzuki/risk_sharing_lc_storage

References

Ábrahám, Árpád, and Sarolta Laczó. 2018. “Efficient Risk Sharing with Limited Commitment and Storage.” The Review of Economic Studies 85 (3): 1389–1424.

Ligon, Ethan, Jonathan P. Thomas, and Tim Worrall. 2002. “Informal Insurance Arrangements with Limited Commitment: Theory and Evidence from Village Economies.” Review of Economic Studies 69 (1): 209–44. https://doi.org/10.1111/1467-937X.00204.