Collective risk aversion
AbstractIn this article we analyze the risk attitude of a group of heterogeneous agents and we develop a theory of comparative collective risk tolerance. In particular, we characterize how shifts in the distribution of individual levels of risk tolerance affect the group’s attitude towards risk. In a model with efficient risk-sharing and two agents an increase in the level of risk tolerance of one or of both agents might have an ambiguous impact on the collective level of risk tolerance; the latter increases for some levels of aggregate wealth while it decreases for other levels of aggregate wealth. For more general populations we characterize the effect of first-order like shifts (individual levels of risk tolerance more concentrated on high values) and second-order like shifts (more dispersion on individual levels of risk tolerance) on the collective level of risk tolerance. We also evaluate how shifts in the distribution of individual levels of risk tolerance impact the collective level of risk tolerance in a framework with exogenous egalitarian sharing rules. Our results permit to better characterize differences in risk taking behavior between groups and individuals and among groups with different distributions of risk preferences. Copyright Springer-Verlag 2013
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Bibliographic InfoArticle provided by Springer in its journal Social Choice and Welfare.
Volume (Year): 40 (2013)
Issue (Month): 2 (February)
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Other versions of this item:
- D1 - Microeconomics - - Household Behavior
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
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