International Risk Sharing and Wealth Allocation with Higher Order Cumulants

We study international risk sharing across countries differing in size, openness, and productivity distributions, emphasizing fat tails. In a canonical IRBC model, safer economies benefit through asset and terms-of-trade revaluations, while riskier ones smooth consumption at the cost of lower wealth. Calibrated to non-Gaussian shocks, country size and openness, the model predicts welfare gains between 0.03% and 6.9% of permanent consumption (median 6%). Assuming Gaussian shocks reduces gains by about 2 percentage points, while assuming equal country size and no home bias renders them negligible. Clustering economies by openness, size, and higher moments accounts for the cross-country distribution of gains.