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Assortative matching of risk-averse agents with endogenous risk

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  • Sanxi Li

    ()

  • Hailin Sun

    ()

  • Pu Chen

    ()

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    Abstract

    A standard risk-sharing matching game predicts negative assortative matching over agents’ risk attitudes. In regards to risk sharing, less risk-averse agents prefer highly risk-averse partners, who pay a high risk premium. Negative sorting is, however, inconsistent with empirical and experimental literature. To resolve this conflict, we propose a model where agents can control the risks to their incomes. In regards to risk management, agents prefer similar partners because of their aligned objectives in risk management. When it is easy to control risks or all agents are sufficiently risk-averse, the risk-management effect dominates, leading to positive sorting. Copyright Springer-Verlag Wien 2013

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    Bibliographic Info

    Article provided by Springer in its journal Journal of Economics.

    Volume (Year): 109 (2013)
    Issue (Month): 1 (May)
    Pages: 27-40

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    Handle: RePEc:kap:jeczfn:v:109:y:2013:i:1:p:27-40

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    Web page: http://www.springerlink.com/link.asp?id=108909

    Related research

    Keywords: Assortative matching; Efficient risk sharing; Endogenous risk; C78; D31; D81; J12;

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