Abstract
This paper constructs a simple model of incomplete insurance by introducing permanent idiosyncratic shocks into an Ak type endogenous growth model. As in the exchange economy of Constantinides and Duffie (1996), we define a no-trading equilibrium using this model. Exploiting a simple closed-form solution, the paper examines several important implications including the effect of precautionary savings caused by uninsured shocks on consumption growth and asset pricing (in particular on risk-free rates of return), the relation with representative agent models, and the cross-sectional consumption distribution.
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