Matching to Share Risk without Commitment
Articles
Overview
published in
- ECONOMIC JOURNAL Journal
publication date
- January 2018
issue
- 613
volume
- 128
Digital Object Identifier (DOI)
full text
International Standard Serial Number (ISSN)
- 0013-0133
Electronic International Standard Serial Number (EISSN)
- 1468-0297
abstract
- (copyright) 2017 Royal Economic SocietyThis article studies the effect of limited commitment on sorting when two sides of a frictionless market form pairs to share risk. On each side, agents are identical except for their risk preferences. First, we provide analytical results when transfers do not condition on the history of shocks. More risk-averse agents can commit to larger transfers, as long as their consumption is less risky than their endowment. With sufficiently large idiosyncratic risk and sufficient discounting of the future, matching is positive assortative, unlike under full commitment. Second, we find positive-assortative stable matchings when transfers are history dependent, using a numerical algorithm.