Citation

Discussion Paper Details

Please find the details for DP14333 in an easy to copy and paste format below:

Full Details

Title: Coalition-Proof Risk Sharing Under Frictions

Author(s): Harold Cole, Dirk Krueger, George J Mailath and Yena Park

Publication Date: January 2020

Keyword(s): Coalitions, Limited Commitment and Risk Sharing

Programme Area(s): International Macroeconomics and Finance, Macroeconomics and Growth, Monetary Economics and Fluctuations and Public Economics

Abstract: We analyze efficient risk-sharing arrangements when coalitions may deviate. Coalitions form to insure against idiosyncratic income risk. Self-enforcing contracts for both the original coalition and any deviating coalition rely on a belief in future cooperation, and we treat the contracting conditions of original and deviating coalitions symmetrically. We show that better belief coordination (higher social capital) tightens incentive constraints since it facilitates both the formation of the original as well as a deviating coalition. As a consequence, the payoff of successfully formed coalitions might be declining in the degree of belief coordination and equilibrium allocations might feature resource burning or utility burning.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14333

Bibliographic Reference

Cole, H, Krueger, D, Mailath, G and Park, Y. 2020. 'Coalition-Proof Risk Sharing Under Frictions'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14333