Risk Sharing and Redistribution in a Federal System with Population Mobility

This paper considers the implications of population mobility for risk sharing among individuals and among regions of a federation. There is an important interaction between risk sharing and interregional redistribution which precludes the regional authorities from fully exploiting gains from interregional risk sharing when population mobility is imperfect. However, the conditions characterising risk sharing arrangements among the individuals within each region in the Nash equilibrium correspond to those of the central authority. Finally, all gains from interregional risk sharing are fully exploited with perfect mobility.