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Publications [#320637] of Xiao Yu Wang

Journal Articles

  1. Wang, XY, Endogenous Insurance and Informal Relationships, Economic Research Initiatives at Duke (ERID) Working Paper no. 161 (February, 2015)
    (last updated on 2017/04/07)

    Heterogeneously risk-averse individuals who lack access to formal insurance build and use relationships with each other to manage risk. I show that the composition of equilibrium relationships under pairwise matching and when group size is endogenous is determined by a mean-variance trade-off across differentially risky productive opportunities, though output distributions may have infinitely-many nonzero cumulants. This has important policy implications. For example, a policy which ignores the equilibrium response of informal institutions may exacerbate inequality and hurt most those it intended to help: a reduction in aggregate risk may lead to an increase in risk borne by the most risk-averse individuals, as the least risk-averse abandon their roles as informal insurers. The theory also sheds light on the channels through which endogenous insurance relationships influence informal firm structure and entrepreneurship.

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