Defining residual risk-sharing opportunities: Pooling world income components |
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| Institution: | 1. University of Notre Dame, Mendoza College of Business Department of Finance and Business Economics, Notre Dame, IN, 46556-5646, U.S.A.;2. Yale University, Department of Economics, Cowles Foundation and International Center for Finance, P.O. Box 208268, New Haven, CT, 06520-8281, U.S.A.;1. Accounting For Desirable Futures LLC, Charlotte, VT 05445, United States;2. Gund Institute for Ecological Economics, University of Vermont, Burlington, VT 05405, United States;3. Program on Coupled Human and Natural Systems, Pardee Institute for the Study of the Longer-Range Future, Boston University, Boston, MA 02215, United States;4. Gordon and Betty Moore Center for Ecosystem Science and Economics, Conservation International 2011 Crystal Drive, Suite 500 Arlington, VA 22202, United States;1. Key Laboratory of Molecular Animal Nutrition, Ministry of Education, College of Animal Sciences, Zhejiang University, Hangzhou 310058, China;2. School of Life Sciences, Northwestern Polytechnical University, Xi’an 710072, China;1. Janelia Research Campus, Howard Hughes Medical Institute, Ashburn, VA 20147, USA;2. Université Côte d’Azur, Inria, CNRS, I3S, 06900 Sophia Antipolis, France;3. Chan Zuckerberg Biohub, San Francisco, CA 94158, USA;1. BHF Cardiovascular Research Centre, University of Glasgow, Glasgow, United Kingdom;2. Department of Cardiology, Rigshospitalet Copenhagen University Hospital, Copenhagen, Denmark;3. Center for Outcomes Research and Evaluation, Research Institute, McGill University Health Centre, Montreal, Quebec, Canada;4. Department of Experimental Medicine, Sapienza University of Rome, Rome, Italy;5. Division of Cardiovascular Medicine, Davis Heart and Lung Research Institute, Ohio State University, Columbus, Ohio;6. Cardiovascular Division, Brigham and Women''s Hospital, Boston, Massachusetts;7. Department of Cardiology, Stavanger University Hospital, University of Bergen, Stavanger, Norway;8. Baylor Heart and Vascular Institute, Baylor University Medical Center, Dallas, Texas;9. Institut de Cardiologie de Montréal, Université de Montréal, Montréal, Quebec, Canada;10. Department of Molecular and Clinical Medicine, University of Gothenburg, Gothenburg, Sweden;11. National Heart and Lung Institute, Imperial College London, London, United Kingdom;12. Division of Cardiology, Medical University of South Carolina and Ralph H. Johnson Veterans Administration Medical Center, Charleston, South Carolina;2. Vrije Universiteit Amsterdam and Tinbergen Institute, The Netherlands;1. Institute of Forming Technology and Equipment, School of Materials Science and Engineering, Shanghai Jiao Tong University, Shanghai 200030, China;2. National Engineering Research Center of Die & Mold CAD, Shanghai Jiao Tong University, Shanghai 200030, China |
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| Abstract: | We construct a new method of decomposing the variance of national incomes into components in such a way as to indicate the most important ‘residual’ risk-sharing opportunities among peoples of the world. The risk-sharing opportunities we study are nonsystematic risk-sharing opportunities. These are the risk-sharing opportunities that would remain if systematic risk were already shared, see 2. The new method developed here uses a simpler approach to deriving the components based on pure variance reduction. With the new method, the income component securities are derived in terms of eigenvectors of a transformed variance matrix of world incomes, but with this method, the transformation is to use the residuals when incomes are regressed on world income instead of deviations of incomes from average world income as in 3. The method is applied using 16 data on national incomes for large countries 1950–1990, using two different methods of estimating variances. |
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