Risk Aversion Heterogeneity, Risky Jobs And Wealth Inequality

Marco Cozzi

No 1286, Working Paper from Economics Department, Queen's University

Abstract: This paper considers the macroeconomic implications of a set of empirical studies finding a high degree of dispersion in preferences for risk. It develops a model with risk aversion heterogeneity, uninsurable idiosyncratic income risk, and (with or without) self-selection into risky jobs to quantify their effects on the distribution of wealth. The results show that the role of risk aversion heterogeneity is quantitatively important. When estimating the risk aversion distribution with the appropriate PSID data on income lotteries, the model matches the observed degree of wealth inequality in the U.S., accounting for both the wealth Gini index and other key features of the wealth distribution. It is also shown that neglecting risk preference heterogeneity has a first order effect on the aggregate allocations.

Keywords: Wealth Inequality; Heterogeneous Agents; Incomplete Markets; Computable General Equilibrium (search for similar items in EconPapers)
JEL-codes: C68 D52 D58 E21 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2012-12
New Economics Papers: this item is included in nep-dge, nep-mac and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://www.econ.queensu.ca/sites/econ.queensu.ca/files/qed_wp_1286.pdf First version 2012 (application/pdf)

Related works:
Working Paper: Risk Aversion Heterogeneity, Risky Jobs and Wealth Inequality (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:1286

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