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Abstract

We model a regional grain reserve as a game of two countries that agree to pool together a fraction of their grain to cope with production risk, but that can also repudiate their obligations at any moment. The reserve can be operated as a “credit union” or an “insurance union”. We find that although risk sharing is more effective when production shocks are negatively correlated, the regional reserve is more sustainable when the correlation is positive. We also find that an “insurance” game can be more sustainable than a “credit” game.

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