In this chapter we study dynamic incentive models in which risk sharing is endogenously limited by the presence of informational or enforcement frictions. We comprehensively overview one of the most important tools for the analysis such problems — the theory of recursive contracts. Recursive...

The debate on the benefits of financial integration is revisited in a two-country neoclassical growth model with aggregate uncertainty. Gains from more efficient capital allocation and gains from risk sharing are accounted for simultaneously|together with their interaction. Global numerical...

I extend the classical general equilibrium treatment of uncertainty about exogenous states of nature to uncertainty about prices. Traders do not know the prices at which markets will clear but have expectations over possible prices. They trade price-contingent securities (derivatives) to insure...

This paper investigates the relationship between the Japanese firms' exposure to the exchange rate risk and risk management, such as choice of invoicing currency, and financial and operational hedge. The firm's exposure to the exchange rate risk is estimated by co-movements of the stock prices...

This paper studies asset pricing and labor market dynamics in a setting in which idiosyncratic risk in human capital is not fully insurable. Firms use long-term contracts to provide insurance to workers, but neither side can fully commit; furthermore, owing to costly and unobservable retention...

Limited liability is a key attribute of the corporate form and one of the most important institutional innovations of the nineteenth century. However, when the owner of a corporation is another corporation as in many corporate groups, an important justification for limited liability—to protect...

We study risk management in financial institutions using data on hedging of interest rate and foreign exchange risk. We find strong evidence that institutions with higher net worth hedge more, controlling for risk exposures, both across institutions and within institutions over time. For...

This paper provides the first, comprehensive evidence on the question of whether the subsidized flood insurance rates are needed to meet the affordability goal of the National Flood Insurance Program. We use IRS records at the zip code level from 2009 to 2016 to compare the real median incomes...

Value at Risk has become the standard measure of market risk employed by financial institutions for both internal and regulatory purposes. Despite its conceptual simplicity, its measurement is a very challenging statistical problem and none of the methodologies developed so far give satisfactory...

What are the effects of increased trade in goods and services on the trade balance? We study the effects of reducing transport costs in a Ricardian model with complete asset markets. Trade integration has three effects on the structure of the economy: a reduction in the home bias in consumption,...