In an economy with a continuum of individuals, each individual has a stochastic, continuously evolving endowment process. Individuals are risk averse and would therefore like to insure their endowment processes. It is feasible to obtain insurance by pooling endowments across individuals because...

A stochastic process impinges on an agent and a principal in distinct ways. From the agent's perspective the process is noise that interferes with his perception of productivity states, leading him to sometimes take actions that are in retrospect mistaken. From the principal's perspective the...