Risk Sharing in a Stochastic Overlapping Generations Economy

This paper examines the impact of government policy on the allocation of aggregate risks in a stochastic OG model with production. The market allocation of risk depends significantly on the young generation's willingness to substitute intertemporally and on government policy. Safe government debt shifts productivity risk from old to young while wage-indexed social security is essentially neutral. I also compare the market allocation to the efficient allocation of risk.