generations, even if the underlying productivity risk is small or zero. We conclude that a joint policy package of orderly default …

-space approach of Arrow-Debreu. A host of new interesting economic issues emerge. First, risk averse agents can attempt to insure … an open question. Second, one may ask more specifically what is the role of social groups for risk sharing and risk … allocation when agents face idiosyncratic or aggregate risk. Third, does a suitable combination of social group formation and …

. We show that the risk allocation is efficient if there is no workout of banking crises. In this case, banks will shift … part of the risk to depositors. In contrast, under a workout of banking crises, depositors receive non-contingent contracts … generations, even if the underlying risk is small or zero. This provides a new justification for capital requirements. …