The Econometric SocietyEdited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262
Econometrica: Mar, 1996, Volume 64, Issue 2
https://doi.org/0012-9682(199603)64:2<333:IRAMI>2.0.CO;2-W
p. 333-341
o-Mou Wu, David Cass, Graciela Chichilnisky
This paper examines how, in the presence of individual risk, economic efficiency can be achieved without an unrealistically large number of contingent claims. Market uncertainty is specified in such a way that general types of individual risk and collective risk are properly accounted for and so that, specifically, market clearing is always satisfied ex post as well as ex ante. We show that consistency of beliefs and optimality of allocation can be guaranteed with an appropriate array of pure Arrow securities to spread collective risk and mutual insurance policies to pool individual risk. When there is individual risk common to like groups of individuals, pooling risk by means of mutual insurance permits substantial economizing on market transactions, as compared to those required if dealing instead with the full complement of pure Arrow securities. We show that if there are $N$ households (consisting of $H$ types), each facing the possibility of being in $S$ individual states together with $T$ collective states, then ensuring Pareto optimally requires only $H(S - 1)T$ independent mutual insurance policies plus $T$ pure Arrow securities. Our results also help to clarify the question of which missing markets may affect allocational efficiency.
March 5, 2024
The terms of the Editors of the Econometric Society's three journals end June 30, 2025. We are pleased to announce the incoming Editors and to thank the outgoing Editors for their excellent and continuing service.
Econometrica: Since 2019, Guido Imbens has served as the 14th Editor of Econometrica. On July 1, 2025, Marina Halac will become the Editor.
Quantitative Economics: Stéphane Bonhomme has been the Editor of Quantitative Economics since 2021. His successor will be Bernard Salanié.
Theoretical Economics: The Editor of Theoretical Economics since 2021 has been Simon Board. Taking over for him in July 2025 will be Federico Echenique.
Guido, Stéphane, and Simon have been outstanding Editors. We are grateful to them for the work they have done and will continue to do, and we look forward to further congratulating them next year. We believe Marina, Bernard, and Federico will be outstanding successors and we thank them in advance for their service.
Finally, we are grateful to Larry Samuelson for chairing all three search committees, and we thank the search committee members for their hard and fruitful work:
Econometrica: Christian Dustmann, Lars Hansen, Alessandro Lizzeri, George Mailath, Ariel Pakes, Helene Rey, and Elie Tamer.
QE: Kate Ho, Michael Keane, Felix Kubler, Whitney Newey, and Frank Schorfheide.
TE: Jeff Ely, Johannes Horner, Gilat Levy, Meg Meyer, and Ran Spiegler.
