Panel A: Single segmentation parameter \(\lambda\). For our benchmark calibration with \(\lambda=0.31\), the welfare cost of segmentation \(\Omega\) is \(2.2\%\) of lifetime consumption. Time-varying volatility accounts for a small but economically significant share of this cost. If \(\sigma_t\) is constant, the cost of segmentation drops to \(1.85\%\) of lifetime consumption.

Panel B: Market-specific segmentation parameters \(\lambda_m\). The welfare cost of segmentation \(\Omega_m\) in each market with and without time-varying volatility. The average welfare cost of segmentation \(\Omega\) is 3% of lifetime consumption, higher than in the single \(\lambda=0.31\) benchmark, despite the average segmentation \(\bar{\lambda}=0.11\) being only one-third as high.