A simple model of multiple equilibria based on risk

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Costain, James S.. A simple model of multiple equilibria based on risk. 1998
To cite or link this document: http://hdl.handle.net/10230/976
dc.contributor.author Costain, James S.
dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa
dc.date.issued 1998-03-01
dc.identifier.uri http://hdl.handle.net/10230/976
dc.description.abstract This paper shows how risk may aggravate fluctuations in economies with imperfect insurance and multiple assets. A two period job matching model is studied, in which risk averse agents act both as workers and as entrepreneurs. They choose between two types of investment: one type is riskless, while the other is a risky activity that creates jobs. Equilibrium is unique under full insurance. If investment is fully insured but unemployment risk is uninsured, then precautionary saving behavior dampens output fluctuations. However, if both investment and employment are uninsured, then an increase in unemployment gives agents an incentive to shift investment away from the risky asset, further increasing unemployment. This positive feedback may lead to multiple Pareto ranked equilibria. An overlapping generations version of the model may exhibit poverty traps or persistent multiplicity. Greater insurance is doubly beneficial in this context since it can both prevent multiplicity and promote risky investment.
dc.language.iso eng
dc.relation.ispartofseries Economics and Business Working Papers Series; 407
dc.rights L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.title A simple model of multiple equilibria based on risk
dc.type info:eu-repo/semantics/workingPaper
dc.date.modified 2016-06-04T02:50:28Z
dc.subject.keyword Macroeconomics and International Economics
dc.subject.keyword multiple equilibria
dc.subject.keyword imperfect insurance
dc.subject.keyword matching
dc.subject.keyword prudence
dc.subject.keyword temperance
dc.subject.keyword precautionary saving
dc.subject.keyword portfolio choice
dc.rights.accessRights info:eu-repo/semantics/openAccess

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