Anastasiia Antonova*, Tizié Bene**

phd seminar

Anastasiia Antonova*, Tizié Bene**

State-dependent pricing and cost-push inflation in a network economy*
Risk-sharing networks and formal insurance**

MEGA Salle Carine Nourry

MEGA - Salle Carine Nourry

Maison de l'économie et de la gestion d'Aix
424 chemin du viaduc
13080 Aix-en-Provence

Mardi 14 février 2023| 11:00 - 12:30

Camille Hainnaux : camille.hainnaux[at]
Daniela Horta Saenz : daniela.horta-saenz[at]
Jade Ponsard : jade.ponsard[at]
Nathan Vieira : nathan.vieira[at]


*In this project, I explore the effect of state-dependent pricing on cost inflation in a production network economy. To this end, I extend a familiar inefficient production network model to include state-dependent price rigidity based on imperfect information. My state-dependent price rigidity model combines the sticky information and behavioral inattention frameworks allowing analytical tractability similar to Calvo models. Theoretically, I show that the Philips curve residual depends on the degree of sectoral state-dependence of price rigidity, which means that the Philips curve residual based on non-state-dependent pricing might be misspecified. Empirically, I use model-based equilibrium equations and the combination of sectoral price and wage data to measure price flexibility and the degree of state dependence in each sector. I find a significant degree of state dependence in sectors, covering about 65% of the consumption basket. Then I use my price flexibility and state-dependence estimates to compute model-implied Philips curve slope and residual over time and evaluate the quantitative importance of state-dependence.

**This paper considers stable risk-sharing networks when formal insurance is available.  Agents' incomes are subject to idiosyncratic shocks which they try to mitigate by sharing monetary assets equally with tied partners, or/and by taking out formal insurance. The formation and maintenance of risk-sharing ties are costly and mimic pairwise altruism by allowing utility transfers between agents. I show that the formal insurance demand of an agent decreases with the number of agents in its component. Based on this result, I show that when the price of formal insurance is less than or equal to the actuarial price, no risk-sharing link is ever formed and the only stable network is the empty network. For prices above the actuarial price, agents begin to form risk-sharing links and non-empty networks can be stable. The structure of these non-empty networks depends on the price of formal insurance, the cost of forming links and idiosyncratic risks.