CentER

Wolf Wagner

Abstract:
It is a long-standing puzzle in economics that risk sharing among individuals is much lower than predicted by standard portfolio models. In this thesis it is investigated whether incentive constraints can explain this lack of risk sharing. Incentive constraints are a potential cause for the absence of risk sharing because efficiency losses arising from individual and governmental moral hazard may render large-scale risk sharing undesirable. Moreover, the non-enforceability of international contracts may not permit the transfers necessary to implement effective risk sharing.

In addressing the matter, this thesis covers issues such as the welfare gains from international risk sharing, the impact of international risk sharing on national economic policies and production efficiency, the welfare effects of international risk sharing in the presence of tax competition, and risk sharing among entrepreneurs that face financing constraints. The thesis outlines the implications of incentive constraints for the efficiency of the actual extent and pattern of risk sharing among individuals and countries and presents policy recommendations.