Self-Insurance vs. Self-Financing: A Welfare Analysis of the Persistence of Shocks
market frictions over time with self-financing. With intermediate levels of frictions in the capital market, welfare costs of market incompleteness have a U shape against the persistence of idiosyncratic shocks. The right arm of the U reflects the difficulty of self-insurance against very persistent shocks; and the left arm, the difficulty of overcoming capital market frictions through self-financing when entrepreneurial opportunities are short-lived.
Year of publication: |
2010
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Authors: | Buera, Francisco ; Shin, Yongseok |
Institutions: | Society for Economic Dynamics - SED |
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