Assortative matching of risk-averse agents with endogenous risk
AbstractA 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 InfoArticle provided by Springer in its journal Journal of Economics.
Volume (Year): 109 (2013)
Issue (Month): 1 (May)
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Assortative matching; Efficient risk sharing; Endogenous risk; C78; D31; D81; J12;
Find related papers by JEL classification:
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- J12 - Labor and Demographic Economics - - Demographic Economics - - - Marriage; Marital Dissolution; Family Structure
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