In this paper, we investigate the implications of a model of consumption
risk sharing where infinitely-lived households face persistent
idiosyncratic shocks to earnings, where the realizations of these shocks
are private information and where there is limited enforcement of
risk-sharing contracts. We compare and contrast these implications with
the implications of other models of consumption risk sharing and with
the data. We also investigate the implied effects of various changes in
the environment in the context of our models and other models. We find
that, in contrast to a model where the only friction is limited
enforcement, our model has observable implications that are similar to
those of a Bewley model and therefore broadly consistent with empirical
observations. However, the implied effects of changes in the environment
or policy are noticeably different in our model compared to a Bewley model.
risk sharing where infinitely-lived households face persistent
idiosyncratic shocks to earnings, where the realizations of these shocks
are private information and where there is limited enforcement of
risk-sharing contracts. We compare and contrast these implications with
the implications of other models of consumption risk sharing and with
the data. We also investigate the implied effects of various changes in
the environment in the context of our models and other models. We find
that, in contrast to a model where the only friction is limited
enforcement, our model has observable implications that are similar to
those of a Bewley model and therefore broadly consistent with empirical
observations. However, the implied effects of changes in the environment
or policy are noticeably different in our model compared to a Bewley model.
