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Risk taking under heterogenous revenue sharing

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  • Belhaj, Mohamed
  • Deroïan, Frédéric

Abstract

We examine the impact of informal risk sharing on risk taking incentives when transfers are organized through a social network. A bilateral partial sharing rule satisfies that neighbors share equally a part of their revenue. In such a society, correlated technologies generate interdependent risk levels. We obtain three findings. First, there is a unique and interior Nash-equilibrium risk profile, and it is in general differentiated and related to the Bonacich measure of the risk sharing network. Second, more revenue sharing enhances risk taking on average, although some agents may lower their risk level. Last, we find that under investment might often be observed.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 98 (2012)
Issue (Month): 2 ()
Pages: 192-202

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Handle: RePEc:eee:deveco:v:98:y:2012:i:2:p:192-202

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Web page: http://www.elsevier.com/locate/devec

Related research

Keywords: Risk taking; Revenue sharing; Social networks; Systematic risk; Strategic substitutes;

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Cited by:
  1. Mohamed Belhaj & Renaud Bourl?s & Fr?d?ric Dero?an, 2014. "Risk-Taking and Risk-Sharing Incentives under Moral Hazard," American Economic Journal: Microeconomics, American Economic Association, vol. 6(1), pages 58-90, February.

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