Date: 2017
Type: Article
Risk sharing and contagion in networks
Review of financial studies, 2017, Vol. 30, No. 9, pp. 3086–3127
CABRALES, Antonio, GOTTARDI, Piero, VEGA-REDONDO, Fernando, Risk sharing and contagion in networks, Review of financial studies, 2017, Vol. 30, No. 9, pp. 3086–3127
- https://hdl.handle.net/1814/51245
Retrieved from Cadmus, EUI Research Repository
We investigate the socially optimal design of financial networks, that allows to tackle the trade-off between risk sharing and contagion. We identify conditions on the shock distribution under which full integration or maximal segmentation is optimal. We also show that, under different conditions, the optimal network displays different levels of strength of linkages to other firms or intermediate degrees of segmentation. In the latter case, the individual and social incentives to establish linkages are not necessarily aligned. When firms face heterogeneous distributions of risks, they should optimally form linkages only with firms facing risks of the same kind.
Additional information:
Published: 14 July 2017
Cadmus permanent link: https://hdl.handle.net/1814/51245
Full-text via DOI: 10.1093/rfs/hhx077
ISSN: 1465-7368; 0893-9454
Publisher: Oxford University Press
Files associated with this item
- Name:
- robustcontagion-260417 11pt.pdf
- Size:
- 514.0Kb
- Format:
- Description:
- Embargoed until 2019, Post-print ...