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The Impact of Risk Sharing on Efficient Decision

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  • Pratt, John W
  • Zeckhauser, Richard J

Abstract

A group of risk-averse members must choose among monetary risks and payoff-sharing rules. Departure from the status quo requires unanimous consent. Such groups drill for oil, bail out nations, and make hostile takeover bids. Assume agreement on probabilities. As is well known, if all members have identically shaped HARA utility functions, efficient group act-choices follow another such function independently of payoff sharing. We show that all other groups inevitably have complex efficient behavior, accepting gambles among individually unacceptable lotteries in almost every status quo position. We also develop proper risk aversion for groups, and treat disagreement on probabilities. Copyright 1989 by Kluwer Academic Publishers

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Bibliographic Info

Article provided by Springer in its journal Journal of Risk and Uncertainty.

Volume (Year): 2 (1989)
Issue (Month): 3 (September)
Pages: 219-34

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Handle: RePEc:kap:jrisku:v:2:y:1989:i:3:p:219-34

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Web page: http://www.springerlink.com/link.asp?id=100299

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Cited by:
  1. Jouini, Elyès & Napp, Clotilde & Nocetti, Diego, 2013. "Collective risk aversion," Economics Papers from University Paris Dauphine 123456789/5673, Paris Dauphine University.
  2. Gordon Rausser & William Balson & Reid Stevens, 2010. "Centralized clearing for over-the-counter derivatives," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 2(4), pages 346-359, December.
  3. David M. Cutler & Richard J. Zeckhauser, 1997. "Reinsurance for Catastrophes and Cataclysms," NBER Working Papers 5913, National Bureau of Economic Research, Inc.
  4. Maurizio Mazzocco, 2004. "Saving, Risk Sharing, and Preferences for Risk," American Economic Review, American Economic Association, vol. 94(4), pages 1169-1182, September.

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