Heterogeneity and the Formation of Risk-Sharing Coalitions

Fabien Moizeau, Fernando Jaramillo () and Hubert Kempf ()

Economics Working Paper Archive (University of Rennes & University of Caen) from Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS

Abstract: We study the relationship between the distribution of individuals' attributes over the population and the extent of risk sharing in a risky environment. We consider a society where individuals differing with respect to risk or their degree of risk aversion form risk-sharing coalitions in the absence of financial markets. We obtain a partition belonging to the core of the membership game. It is homophily-based: the less risky (or the more risk tolerant) agents congregate together and reject more risky ones (or less risk tolerant ones) into other coalitions. The distribution of risk or risk aversion affects the number and the size of these coalitions. It turns out that individuals may pay a lower risk premium in more risky societies. We also show that a higher heterogeneity in risk or risk aversion leads to a lower degree of partial risk-sharing. The empirical evidence on partial risk sharing can be understood when the endogenous partition of society into risk-sharing coalitions is taken into account.

Keywords: Risk Sharing; Group Membership; Social Segmentation (search for similar items in EconPapers)
JEL-codes: C71 D3 D71 D81 (search for similar items in EconPapers)
Date: 2011-09
New Economics Papers: this item is included in nep-gth and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Heterogeneity and the formation of risk-sharing coalitions (2015)
Working Paper: Heterogeneity and the formation of risk-sharing coalitions (2015)
Working Paper: Heterogeneity and the formation of risk-sharing coalitions (2015)
Working Paper: Heterogeneity and the formation of risk-sharing coalitions (2015)
Working Paper: Heterogeneity and the formation of risk - sharing coalitions (2013)
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