Browsing by Subject "risk sharing"
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Item Open Access Endogenous Insurance and Informal Relationships(Economic Research Initiatives at Duke (ERID) Working Paper, 2015-02-23) Wang, XYHeterogeneously risk-averse individuals who lack access to formal insurance build and use relationships with each other to manage risk. I show that the composition of equilibrium relationships under pairwise matching and when group size is endogenous is determined by a mean-variance trade-off across differentially risky productive opportunities, though output distributions may have infinitely-many nonzero cumulants. This has important policy implications. For example, a policy which ignores the equilibrium response of informal institutions may exacerbate inequality and hurt most those it intended to help: a reduction in aggregate risk may lead to an increase in risk borne by the most risk-averse individuals, as the least risk-averse abandon their roles as informal insurers. The theory also sheds light on the channels through which endogenous insurance relationships influence informal firm structure and entrepreneurship.Item Embargo Information Transparency and Risk Sharing in Commodity Futures Markets(2023) Wang, ShuyanA central function of commodity futures markets is to help firms in the real sector insure against commodity price fluctuations. I examine how greater availability of information about commodity fundamentals (henceforth, information transparency) affects the capacity of these markets to accommodate firms’ hedging needs. Theory suggests that while greater availability of information can reduce adverse selection and increase traders’ willingness to absorb risk, it can also accelerate the realization of risk and hinder the transfer of risk via the markets. Using both cross-sectional variation in information transparency across 26 commodity markets over 20 years and information shocks induced by the launch of the Agricultural Market Information System (AMIS) and the SEC’s revision of firms’ 10-K oil and gas reserve disclosures, I document that information transparency (i) makes it costlier to use commodity futures to hedge commodity price risk and (ii) reduces traders’ propensity to trade futures. Evidence suggests that these findings are consistent with theories positing that information disclosure impairs risk-sharing opportunities. This study contributes new evidence on how information influences the efficient allocation of commodity price risk across the real and financial sectors.
Item Open Access ON THE (MIS)USE OF WEALTH AS A PROXY FOR RISK AVERSION(AMERICAN JOURNAL OF AGRICULTURAL ECONOMICS, 2010-01) Bellemare, MF; Brown, ZS