Pooling Risk Among Countries ∗

@inproceedings{Callen2007PoolingRA,
  title={Pooling Risk Among Countries ∗},
  author={Michael Callen and Jean Imbs and Paolo Mauro},
  year={2007}
}
We present a model where the enforcement of international risk sharing contracts is costly. With non diversifiable enforcement costs, welfare is not necessarily maximized for perfect worldwide risk sharing. Some groupings, or “pools” of countries can deliver higher welfare, with higher diversification gains net of enforcement costs. We construct an exhaustive list of such pools of countries. For each pool, we compute the volatility of poolwide consumption and Gross Domestic Product growth, and… CONTINUE READING

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