TY  - JOUR
AU  - Stiglitz,Joseph E.
TI  - Risk and Global Economic Architecture: Why Full Financial Integration May Be Undesirable
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15718
PY  - 2010
Y2  - February 2010
UR  - http://www.nber.org/papers/w15718
L1  - http://www.nber.org/papers/w15718.pdf
N1  - Author contact info:
Joseph E. Stiglitz
Uris Hall, Columbia University
3022 Broadway, Room 212
New York, NY  10027
Tel: 212/854-0671
Fax: 212/662-8474
E-Mail: jes322@columbia.edu
AB  - 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.
ER  -