Heterogeneity and the formation of risk-sharing coalitions

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

Journal of Development Economics, 2015, vol. 114, issue C, 79-96

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 voluntarily form risk-sharing groups in the absence of financial markets. We obtain a partition of society into distinct coalitions leading to partial risk sharing. When individuals differ only with respect to risk, the partition is homophily-based: the less risky agents congregate together and reject more risky ones into other coalitions. The distribution of risk affects the number and size of these coalitions. It turns out that individuals may pay a lower risk premium in more risky societies. We show that a higher heterogeneity in risk leads to a lower degree of partial risk sharing. The case of heterogenous risk aversion generates similar results. 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: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304387814001023
Full text for ScienceDirect subscribers only

Related works:
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)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:114:y:2015:i:c:p:79-96

DOI: 10.1016/j.jdeveco.2014.09.003

Access Statistics for this article

Journal of Development Economics is currently edited by M. R. Rosenzweig

More articles in Journal of Development Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().