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Representative Consumer's Risk Aversion and Efficient Risk-Sharing Rules

Chiaki Hara (), James Huang () and Christoph Kuzmics
Additional contact information
James Huang: Department of Accounting and Management, Lancaster University Management School

No 620, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: We study the representative consumer's risk attitude and efficient risk-sharing rules in a singleperiod, single-good economy in which consumers have homogeneous probabilistic beliefs but heterogeneous risk attitudes. We prove that if all consumers have convex absolute risk tolerance, so must the representative consumer. We also identify a relationship between the curvature of an individual consumer's individual risk sharing rule and his absolute cautiousness, the first derivative of absolute risk-tolerance. Furthermore, we discuss some consequences of these results and refinements of these results for the class of HARA utility functions.

Keywords: Aggregation; heterogeneous consumers; absolute risk tolerance; mutual fund theorem. (search for similar items in EconPapers)
JEL-codes: D51 D58 D81 G11 G12 G13 (search for similar items in EconPapers)
Pages: 26pages
Date: 2006-05
New Economics Papers: this item is included in nep-cfn, nep-fin and nep-upt
References: View references in EconPapers View complete reference list from CitEc
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http://www.kier.kyoto-u.ac.jp/DP/DP620.pdf (application/pdf)

Related works:
Journal Article: Representative consumer's risk aversion and efficient risk-sharing rules (2007) Downloads
Working Paper: Representative Consumer's Risk Aversion and Efficient Risk-Sharing Rules (2007) Downloads
Working Paper: Representative Consumer's Risk Aversion and Efficient Risk-Sharing Rules (2004) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:kyo:wpaper:620

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