Consider the random relocation economy developed in this chapter. Each person receives an endowment of 500 goods when young and nothing when old. People only want to consume when old. Let Mt = 1.1Mt−1 for every period t. The net rate of return on capital is 15 percent.

a. Write down the contract that a competitive bank would offer to a mover.

b. Write down the contract that a competitive bank would offer to a non-mover.

c. Does this represent perfect risk sharing? Briefly explain your answer.