An Alternative Unifying Measure of Welfare Gains from Risk-Sharing
Following Lucas's (1987) standard approach, welfare gains from international risk-sharing have been measured as the percentage increase in consumption levels that leaves individuals indifferent between, autarky and risk-sharing. The author proposes to measure welfare gains as the increase in consumption growth, instead of consumption levels. When the consumption process is non-stationary, the author's proposed measure has several attractive features: it does not depend on the horizon, and it is robust to alternative specifications of the consumption stochastic processes (from geometric Brownian processes, to Orstein-Ulhenbeck mean-reverting processes), and preferences (from constant relative risk aversion preferences to Kreps-Porteus preferences). The author then uses this measure to estimate potential welfare gains from international risk-sharing for a representative U.S. consumer. The author finds that if international risk-sharing leads only to a complete elimination of aggregate consumption volatility (with no impact on consumption growth), it represents gains to a U.S. consumer of only $ 12 a year on average. But if international risk-sharing also permits an increase in consumption growth, it may have a sizable impact on welfare. Each 0.5 percentage point increase in consumption growth, represents gains to a U.S. consumer of about $ 160 a year on average.
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dig-okr-10986195522024-08-08T18:00:11Z An Alternative Unifying Measure of Welfare Gains from Risk-Sharing Auffret, Philippe AGGREGATE CONSUMPTION BUSINESS CYCLE CONDITIONAL CONVERGENCE CONSUMER PREFERENCES CONSUMPTION GROWTH CONSUMPTION LEVELS DISCOUNT RATE DISCOUNT RATES ECONOMIC FLUCTUATIONS ECONOMIC POLICY ECONOMIC WELFARE ECONOMICS ECONOMICS LITERATURE ELASTICITY ELASTICITY OF SUBSTITUTION EMPIRICAL RESULTS EMPIRICAL SECTION EMPIRICAL STUDIES EQUILIBRIUM EQUITY MARKETS EXPECTED UTILITY FISCAL POLICY FUTURE RESEARCH GDP GENERAL EQUILIBRIUM MODEL GROWTH RATE INCOME INSURANCE INTEREST RATE INTEREST RATES MARGINAL UTILITY OPTIMIZATION OPTIMIZING BEHAVIOR PER CAPITA CONSUMPTION PER CAPITA CONSUMPTION GROWTH POLICY RESEARCH POPULATION GROWTH PORTFOLIO PORTFOLIOS PUBLIC POLICY RANDOM WALK RISK AVERSION RISK PREMIUM RISK SHARING SECURITIES UNDERVALUATION UTILITY FUNCTION UTILITY FUNCTIONS WEALTH WELFARE GAINS Following Lucas's (1987) standard approach, welfare gains from international risk-sharing have been measured as the percentage increase in consumption levels that leaves individuals indifferent between, autarky and risk-sharing. The author proposes to measure welfare gains as the increase in consumption growth, instead of consumption levels. When the consumption process is non-stationary, the author's proposed measure has several attractive features: it does not depend on the horizon, and it is robust to alternative specifications of the consumption stochastic processes (from geometric Brownian processes, to Orstein-Ulhenbeck mean-reverting processes), and preferences (from constant relative risk aversion preferences to Kreps-Porteus preferences). The author then uses this measure to estimate potential welfare gains from international risk-sharing for a representative U.S. consumer. The author finds that if international risk-sharing leads only to a complete elimination of aggregate consumption volatility (with no impact on consumption growth), it represents gains to a U.S. consumer of only $ 12 a year on average. But if international risk-sharing also permits an increase in consumption growth, it may have a sizable impact on welfare. Each 0.5 percentage point increase in consumption growth, represents gains to a U.S. consumer of about $ 160 a year on average. 2014-08-21T15:30:46Z 2014-08-21T15:30:46Z 2001-09 http://documents.worldbank.org/curated/en/2001/09/1614752/alternative-unifying-measure-welfare-gains-risk-sharing https://hdl.handle.net/10986/19552 English en_US Policy Research Working Paper;No. 2676 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ application/pdf text/plain World Bank, Washington, DC |
| institution |
Banco Mundial |
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DSpace |
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Estados Unidos |
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US |
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Bibliográfico |
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En linea |
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dig-okr |
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biblioteca |
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America del Norte |
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Biblioteca del Banco Mundial |
| language |
English en_US |
| topic |
AGGREGATE CONSUMPTION BUSINESS CYCLE CONDITIONAL CONVERGENCE CONSUMER PREFERENCES CONSUMPTION GROWTH CONSUMPTION LEVELS DISCOUNT RATE DISCOUNT RATES ECONOMIC FLUCTUATIONS ECONOMIC POLICY ECONOMIC WELFARE ECONOMICS ECONOMICS LITERATURE ELASTICITY ELASTICITY OF SUBSTITUTION EMPIRICAL RESULTS EMPIRICAL SECTION EMPIRICAL STUDIES EQUILIBRIUM EQUITY MARKETS EXPECTED UTILITY FISCAL POLICY FUTURE RESEARCH GDP GENERAL EQUILIBRIUM MODEL GROWTH RATE INCOME INSURANCE INTEREST RATE INTEREST RATES MARGINAL UTILITY OPTIMIZATION OPTIMIZING BEHAVIOR PER CAPITA CONSUMPTION PER CAPITA CONSUMPTION GROWTH POLICY RESEARCH POPULATION GROWTH PORTFOLIO PORTFOLIOS PUBLIC POLICY RANDOM WALK RISK AVERSION RISK PREMIUM RISK SHARING SECURITIES UNDERVALUATION UTILITY FUNCTION UTILITY FUNCTIONS WEALTH WELFARE GAINS AGGREGATE CONSUMPTION BUSINESS CYCLE CONDITIONAL CONVERGENCE CONSUMER PREFERENCES CONSUMPTION GROWTH CONSUMPTION LEVELS DISCOUNT RATE DISCOUNT RATES ECONOMIC FLUCTUATIONS ECONOMIC POLICY ECONOMIC WELFARE ECONOMICS ECONOMICS LITERATURE ELASTICITY ELASTICITY OF SUBSTITUTION EMPIRICAL RESULTS EMPIRICAL SECTION EMPIRICAL STUDIES EQUILIBRIUM EQUITY MARKETS EXPECTED UTILITY FISCAL POLICY FUTURE RESEARCH GDP GENERAL EQUILIBRIUM MODEL GROWTH RATE INCOME INSURANCE INTEREST RATE INTEREST RATES MARGINAL UTILITY OPTIMIZATION OPTIMIZING BEHAVIOR PER CAPITA CONSUMPTION PER CAPITA CONSUMPTION GROWTH POLICY RESEARCH POPULATION GROWTH PORTFOLIO PORTFOLIOS PUBLIC POLICY RANDOM WALK RISK AVERSION RISK PREMIUM RISK SHARING SECURITIES UNDERVALUATION UTILITY FUNCTION UTILITY FUNCTIONS WEALTH WELFARE GAINS |
| spellingShingle |
AGGREGATE CONSUMPTION BUSINESS CYCLE CONDITIONAL CONVERGENCE CONSUMER PREFERENCES CONSUMPTION GROWTH CONSUMPTION LEVELS DISCOUNT RATE DISCOUNT RATES ECONOMIC FLUCTUATIONS ECONOMIC POLICY ECONOMIC WELFARE ECONOMICS ECONOMICS LITERATURE ELASTICITY ELASTICITY OF SUBSTITUTION EMPIRICAL RESULTS EMPIRICAL SECTION EMPIRICAL STUDIES EQUILIBRIUM EQUITY MARKETS EXPECTED UTILITY FISCAL POLICY FUTURE RESEARCH GDP GENERAL EQUILIBRIUM MODEL GROWTH RATE INCOME INSURANCE INTEREST RATE INTEREST RATES MARGINAL UTILITY OPTIMIZATION OPTIMIZING BEHAVIOR PER CAPITA CONSUMPTION PER CAPITA CONSUMPTION GROWTH POLICY RESEARCH POPULATION GROWTH PORTFOLIO PORTFOLIOS PUBLIC POLICY RANDOM WALK RISK AVERSION RISK PREMIUM RISK SHARING SECURITIES UNDERVALUATION UTILITY FUNCTION UTILITY FUNCTIONS WEALTH WELFARE GAINS AGGREGATE CONSUMPTION BUSINESS CYCLE CONDITIONAL CONVERGENCE CONSUMER PREFERENCES CONSUMPTION GROWTH CONSUMPTION LEVELS DISCOUNT RATE DISCOUNT RATES ECONOMIC FLUCTUATIONS ECONOMIC POLICY ECONOMIC WELFARE ECONOMICS ECONOMICS LITERATURE ELASTICITY ELASTICITY OF SUBSTITUTION EMPIRICAL RESULTS EMPIRICAL SECTION EMPIRICAL STUDIES EQUILIBRIUM EQUITY MARKETS EXPECTED UTILITY FISCAL POLICY FUTURE RESEARCH GDP GENERAL EQUILIBRIUM MODEL GROWTH RATE INCOME INSURANCE INTEREST RATE INTEREST RATES MARGINAL UTILITY OPTIMIZATION OPTIMIZING BEHAVIOR PER CAPITA CONSUMPTION PER CAPITA CONSUMPTION GROWTH POLICY RESEARCH POPULATION GROWTH PORTFOLIO PORTFOLIOS PUBLIC POLICY RANDOM WALK RISK AVERSION RISK PREMIUM RISK SHARING SECURITIES UNDERVALUATION UTILITY FUNCTION UTILITY FUNCTIONS WEALTH WELFARE GAINS Auffret, Philippe An Alternative Unifying Measure of Welfare Gains from Risk-Sharing |
| description |
Following Lucas's (1987) standard
approach, welfare gains from international risk-sharing have
been measured as the percentage increase in consumption
levels that leaves individuals indifferent between, autarky
and risk-sharing. The author proposes to measure welfare
gains as the increase in consumption growth, instead of
consumption levels. When the consumption process is
non-stationary, the author's proposed measure has
several attractive features: it does not depend on the
horizon, and it is robust to alternative specifications of
the consumption stochastic processes (from geometric
Brownian processes, to Orstein-Ulhenbeck mean-reverting
processes), and preferences (from constant relative risk
aversion preferences to Kreps-Porteus preferences). The
author then uses this measure to estimate potential welfare
gains from international risk-sharing for a representative
U.S. consumer. The author finds that if international
risk-sharing leads only to a complete elimination of
aggregate consumption volatility (with no impact on
consumption growth), it represents gains to a U.S. consumer
of only $ 12 a year on average. But if international
risk-sharing also permits an increase in consumption growth,
it may have a sizable impact on welfare. Each 0.5 percentage
point increase in consumption growth, represents gains to a
U.S. consumer of about $ 160 a year on average. |
| topic_facet |
AGGREGATE CONSUMPTION BUSINESS CYCLE CONDITIONAL CONVERGENCE CONSUMER PREFERENCES CONSUMPTION GROWTH CONSUMPTION LEVELS DISCOUNT RATE DISCOUNT RATES ECONOMIC FLUCTUATIONS ECONOMIC POLICY ECONOMIC WELFARE ECONOMICS ECONOMICS LITERATURE ELASTICITY ELASTICITY OF SUBSTITUTION EMPIRICAL RESULTS EMPIRICAL SECTION EMPIRICAL STUDIES EQUILIBRIUM EQUITY MARKETS EXPECTED UTILITY FISCAL POLICY FUTURE RESEARCH GDP GENERAL EQUILIBRIUM MODEL GROWTH RATE INCOME INSURANCE INTEREST RATE INTEREST RATES MARGINAL UTILITY OPTIMIZATION OPTIMIZING BEHAVIOR PER CAPITA CONSUMPTION PER CAPITA CONSUMPTION GROWTH POLICY RESEARCH POPULATION GROWTH PORTFOLIO PORTFOLIOS PUBLIC POLICY RANDOM WALK RISK AVERSION RISK PREMIUM RISK SHARING SECURITIES UNDERVALUATION UTILITY FUNCTION UTILITY FUNCTIONS WEALTH WELFARE GAINS |
| author |
Auffret, Philippe |
| author_facet |
Auffret, Philippe |
| author_sort |
Auffret, Philippe |
| title |
An Alternative Unifying Measure of Welfare Gains from Risk-Sharing |
| title_short |
An Alternative Unifying Measure of Welfare Gains from Risk-Sharing |
| title_full |
An Alternative Unifying Measure of Welfare Gains from Risk-Sharing |
| title_fullStr |
An Alternative Unifying Measure of Welfare Gains from Risk-Sharing |
| title_full_unstemmed |
An Alternative Unifying Measure of Welfare Gains from Risk-Sharing |
| title_sort |
alternative unifying measure of welfare gains from risk-sharing |
| publisher |
World Bank, Washington, DC |
| publishDate |
2001-09 |
| url |
http://documents.worldbank.org/curated/en/2001/09/1614752/alternative-unifying-measure-welfare-gains-risk-sharing https://hdl.handle.net/10986/19552 |
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AT auffretphilippe analternativeunifyingmeasureofwelfaregainsfromrisksharing AT auffretphilippe alternativeunifyingmeasureofwelfaregainsfromrisksharing |
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