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Heterogeneity and the formation of risk-sharing coalitions

Fernando Jaramillo (), Hubert Kempf and Fabien Moizeau

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: We study the relationship between the distribution of individuals' attributes over the pop-ulation 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 congreg-ate 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 (search for similar items in EconPapers)
Date: 2015-05
New Economics Papers: this item is included in nep-cdm, nep-pke and nep-rmg
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01075648
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Citations: View citations in EconPapers (6)

Published in Journal of Development Economics, 2015, 114, pp.79-96. ⟨10.1016/j.jdeveco.2014.09.003⟩

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Related works:
Journal Article: Heterogeneity and the formation of risk-sharing coalitions (2015) Downloads
Working Paper: Heterogeneity and the formation of risk-sharing coalitions (2015) Downloads
Working Paper: Heterogeneity and the formation of risk-sharing coalitions (2015) Downloads
Working Paper: Heterogeneity and the formation of risk - sharing coalitions (2013) Downloads
Working Paper: Heterogeneity and the Formation of Risk-Sharing Coalitions (2011) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:halshs-01075648

DOI: 10.1016/j.jdeveco.2014.09.003

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