Risk taking under heterogenous revenue sharing

Mohamed Belhaj () and Frédéric Deroïan ()

Journal of Development Economics, 2012, vol. 98, issue 2, 192-202

Abstract: We examine the impact of informal risk sharing on risk taking incentives when transfers are organized through a social network. A bilateral partial sharing rule satisfies that neighbors share equally a part of their revenue. In such a society, correlated technologies generate interdependent risk levels. We obtain three findings. First, there is a unique and interior Nash-equilibrium risk profile, and it is in general differentiated and related to the Bonacich measure of the risk sharing network. Second, more revenue sharing enhances risk taking on average, although some agents may lower their risk level. Last, we find that under investment might often be observed.

Keywords: Risk taking; Revenue sharing; Social networks; Systematic risk; Strategic substitutes (search for similar items in EconPapers)
JEL-codes: C72 D81 D85 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:98:y:2012:i:2:p:192-202

DOI: 10.1016/j.jdeveco.2011.07.003

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