Standard risk aversion and efficient risk sharing

Richard M. H. Suen

Economics Letters, 2018, vol. 173, issue C, 23-26

Abstract: This paper analyzes the risk attitude and investment behavior of a group of heterogeneous consumers who face an uninsurable 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 portfolio 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
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: 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:eee:ecolet:v:173:y:2018:i:c:p:23-26

DOI: 10.1016/j.econlet.2018.09.005

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