Risk and Global Economic Architecture: Why Full Financial Integration May Be Undesirable / Joseph E. Stiglitz.

Format:

Book

Author/Creator:

Stiglitz, Joseph E.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w15718.

NBER working paper series no. w15718

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Risk and Global Economic Architecture

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2010.

Summary:

This paper provides a general framework for analyzing the optimal degree and form of financial integration. Full integration is not in general optimal: faced with a choice between two polar regimes, full integration or autarky, autarky may be superior. The intuition is simple: if underlying technologies are not convex, then risk-sharing can lower expected utility. The simplistic models arguing for financial integration typically employed in economics assume convexity; but the world is rife with non-convexities, e.g. associated with bankruptcy. The architecture of the credit market can, for instance, affect the likelihood of a bankruptcy cascade, "contagion," and systemic risk.

Notes:

Print version record

February 2010.