Forc=0, U(r-pD=U(r-Z+1-pl That is, consumption/income is equal or/=Zandr-pl=Y-TI=Y-Z+l- across states Hence, for c=0, people perfectly insure against the shock. ( What if c>0?For c  0, U Y  pI  U Y  Z  I  pI or I  Z and Y  pI  Y  I  Y  Z  I  pI. That is, consumption/income is equal across states. Hence, for c  0, people perfectly insure against the shock. (What if c  0?)