Advanced Search
MyIDEAS: Login to save this paper or follow this series

Heterogeneous risk aversion and the dynamics of the wealth distribution

Contents:

Author Info

  • Daniele Coen-Pirani

Abstract

Abstract This paper studies the role played by differences in risk-aversion in a affecting the long-run distribution of wealth across agents in the context of a stochastic growth model with complete markets. The economy is populated by two types of Epstein-Zin agents who differ only in their attitudes toward risk. The paper derives conditions on the parameters of the model under which a type’s wealth converges to zero almost surely in the long-run. As in the expected utility framework, the long-run distribution of wealth in this economy is always degenerate. However, unlike the expected utility framework, according to the parameters of the model, the latter is dominated by either less or more risk-averse agents. By choosing riskier portfolio strategies less risk-averse agents enjoy returns on their investments characterized by a higher mean and a higher variance than the ones enjoyed by more risk-averse agents. The former effect tends to make less risk-averse agents wealthier over time, while the latter tends to make them poorer. When the latter effect prevails the wealth of less risk-averse agents converges to zero almost surely. The separability between attitudes toward intertemporal substitution and attitudes toward risk-aversion allowed by Epstein-Zin preferences plays a key role in this analysis. In the standard expected utility framework, in fact, less risk-averse agents (i.e., agents that are more willing to substitute consumption intertemporally) always dominate the long-run distribution of wealth in a growing economy. Keywords: Wealth distribution, risk aversion, heterogeneous agents. JEL Classification: D31, O40.

Download Info

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Bibliographic Info

Paper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number 2002-07.

as in new window
Length:
Date of creation: Nov 2001
Date of revision:
Handle: RePEc:cmu:gsiawp:-1461951912

Contact details of provider:
Postal: Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890
Web page: http://www.tepper.cmu.edu/

Order Information:
Web: http://student-3k.tepper.cmu.edu/gsiadoc/GSIA_WP.asp

Related research

Keywords:

Find related papers by JEL classification:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cmu:gsiawp:-1461951912. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Steve Spear).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.