The Pareto-Efficient Relativity of Relative Risk Aversion
Microeconomics from University Library of Munich, Germany
In a pure-exchange economy involving one perishable consumption good and risk-averse consumers, the elasticity of a consumer’s Pareto-efficient consumption with respect to aggregate output equals the reciprocal of the ratio of the consumer’s coefficient of relative risk aversion to average relative risk aversion. Therefore, this elasticity is unity for someone with average relative risk aversion, whereas consumers with above average relative risk aversion transfer some of their aggregate- output risk to consumers with below average relative risk aversion. This result has important implications on the financial securities needed to complete markets, inflation indexing, and central bank goals and targeting objectives.
Keywords: state-contingent securities; Arrow-Debreu economy; Pareto efficiency; relative risk aversion (search for similar items in EconPapers)
JEL-codes: D1 D2 D3 D4 (search for similar items in EconPapers)
Pages: 20 pages
Note: Type of Document - pdf; pages: 20. This deals with Arrow- Debreu pure-exchange economies without storage.
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpmi:0509004
Access Statistics for this paper
More papers in Microeconomics from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ().