Standard Risk Aversion and Efficient Risk Sharing

Richard M. H. Suen

MPRA Paper from University Library of Munich, Germany

Abstract: This paper analyzes the risk attitude and investment behavior of a group of heterogeneous consumers who face an undesirable background risk. It is shown that standard risk aversion at the individual level does not imply standard risk aversion at the group level under efficient risk sharing. This points to a potential divergence between individual and collective investment choices in the presence of background risk. We show that if the members' absolute risk tolerance is increasing and satisfies a strong form of concavity, then the group has standard risk aversion.

Keywords: Standard risk aversion; Efficient risk sharing; Background risk; Portfolio choice. (search for similar items in EconPapers)
JEL-codes: D70 D81 G11 (search for similar items in EconPapers)
Date: 2018-03-29
New Economics Papers: this item is included in nep-mic, nep-rmg and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Standard risk aversion and efficient risk sharing (2018)
Working Paper: Standard Risk Aversion and Efficient Risk Sharing (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:86499

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