Shadow Insurance

Robust insurance mechanisms and the shadow prices of information constraints

On Mutual Insurance

Owners of stochastic assets can pool their endowments to smoothen and insure individual payoffs across outcomes and time. We explore, in such a setting, how contingent shadow prices on aggregate resources can be used for three purposes: First, to design mutual contracts for risk averse agents; second, to quantify the malfunctioning of such contracts when there are risk lovers (or scale economie...

Health Care Reform: Separating Insurance from Income Redistribution

Most systems of health care financing in EU member states currently include elements of income redistribution. The paper analyzes the effects of shifting this kind of redistribution to the tax system and argues that this reform could create two types of efficiency gains. On the expenditure side, it would facilitate the adoption of more incentive-compatible insurance contracts, for example throu...

Valuing Asset Insurance in the Presence of Poverty Traps: A Dynamic Approach

Ample evidence exists to suggest that nonlinear asset dynamics can give rise to an environ­ ment of poverty traps. When dynamic asset thresholds matter, asset insurance offers great promise for managing risks that vulnerable households face. In this paper, we use dynamic programming techniques to generate an option value measure of welfare gains attributable to asset insurance in this context. ...

Shadow Banking and the Four Pillars of Traditional Financial Intermediation*

Traditional banking is built on four pillars: SME lending, access to public liquidity, deposit insurance, and prudential supervision. This vision has been shattered by repeated bailouts of shadow financial institutions. This paper puts “special depositors and borrowers” at the core of the analysis, provides a rationale for the covariation yielding the quadrilogy, and analyzes how prudential reg...

Regulating the Shadow Banking System [with Comments and Discussion]

The shadow banking system played a major role in the recent financial crisis but remains largely unregulated. We propose principles for its regulation and describe a specific proposal to implement those principles. We document how the rise of shadow banking was helped by regulatory and legal changes that gave advantages to three main institutions: money-market mutual funds (MMMFs) to capture re...