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A Reconsideration of Arrow-Lind: Risk Aversion, Risk Sharing, and Agent Choice

Eric Fesselmeyer (), Leonard Mirman and Marc Santugini

Cahiers de recherche from CIRPEE

Abstract: We consider the original Arrow-Lind framework in which a government undertakes a risky project to be shared among many taxpayers. In our model, the taxpayers decide the level of participation in the risky project. Moreover, the amount of taxes collected by the government fully finances the public project. In this case, we show that projects cannot be evaluated only on the basis of expected benefits since the resulting tax determined by the model is incompatible with any risk sharing.

Keywords: Arrow-Lind Theorem; Risk aversion; Risk sharing; Choice (search for similar items in EconPapers)
JEL-codes: D81 G10 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-ent and nep-upt
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