Aversion Analysis

Marie Allard, Camille Bronsard and Christian Gourieroux

Cahiers de recherche from Universite de Montreal, Departement de sciences economiques

Abstract: In this paper : a) the consumer’s problem is studied over two periods, the second one involving S states, and the consumer being endowed with S+1 incomes and having access to N financial assets; b) the consumer is then representable by a continuously differentiable system of demands, commodity demands, asset demands and desirabilities of incomes (the S+1 Lagrange multiplier of the S+1 constraints); c) the multipliers can be transformed into subjective Arrow prices; d) the effects of the various incomes on these Arrow prices decompose into a compensation effect (an Antonelli matrix) and a wealth effect; e) the Antonelli matrix has rank S-N, the dimension of incompleteness, if the consumer can financially adjust himself when facing income shocks; f) the matrix has rank S, if not; g) in the first case, the matrix represents a residual aversion; in the second case, a fundamental aversion; the difference between them is an aversion to illiquidity; this last relation corresponds to the Drèze-Modigliani decomposition (1972); h) the fundamental aversion decomposes also into an aversion to impatience and a risk aversion; i) the above decompositions span a third decomposition; if there exists a sure asset (to be defined, the usual definition being too specific), the fundamental aversion admits a three-component decomposition, an aversion to impatience, a residual aversion and an aversion to the illiquidity of risky assets; j) the formulas of the corresponding financial premiums are also presented.

Keywords: risk aversion; aversion to imtience; illiquidity aversion; multidimensional aversions; financial emiums; Antonelli matrix; asset substitutability; Drèze-Modigliani decomsition; subjective certainty; sure and risky assets; incomete markets (search for similar items in EconPapers)
Pages: 55 pages
Date: 2003
New Economics Papers: this item is included in nep-mic and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://hdl.handle.net/1866/494 (application/pdf)

Related works:
Working Paper: Aversion Analysis (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mtl:montde:2003-06

Access Statistics for this paper

More papers in Cahiers de recherche from Universite de Montreal, Departement de sciences economiques Contact information at EDIRC.
Bibliographic data for series maintained by Sharon BREWER ().