Risk Sharing and Growth in the Gifts Economy

Abstract

We consider a two-period overlapping generations model where agents face the uncertainty of intergenerational transfers from their children. To avoid this kind of risk, agents have an incentive to share the risk within the same generation. However, there exists an information asymmetry about the realization of the old periodfs income between the insurance company and old agents. By analyzing economies with and without risk sharing, we find that risk sharing decreases the rate of economic growth and accelerates social welfare when the rate of social time preference is sufficiently large.gifts economy, risk sharing, information asymmetry, economic growth, overlapping generations