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Income risk aversion with quantity constraints

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  • Schroyen, Fred

    ()
    (Dept. of Economics, Norwegian School of Economics and Business Administration)

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    Abstract

    In this paper, I consider a consumer with a concave utility function over n commodities and trace out the consequences of quantity constraints on product markets for the consumer’s aversion towards income risk. I show that the effect can be decomposed in a cardinal and ordinal term, that both terms may add up to a non-linear effct on the coefficient of relative risk aversion, and that a severely rationed consumer may even become less risk averse then when unconstrained.

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    File URL: http://www.nhh.no/Admin/Public/DWSDownload.aspx?File=%2fFiles%2fFiler%2finstitutter%2fsam%2fDiscussion+papers%2f2010%2f08.pdf
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    Bibliographic Info

    Paper provided by Department of Economics, Norwegian School of Economics in its series Discussion Paper Series in Economics with number 8/2010.

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    Length: 13 pages
    Date of creation: 04 Feb 2010
    Date of revision:
    Handle: RePEc:hhs:nhheco:2010_008

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    Postal: NHH, Department of Economics, Helleveien 30, N-5045 Bergen, Norway
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    Related research

    Keywords: Household demand; income risk aversion; quantity constraints.;

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    1. Robert B. Barsky & Miles S. Kimball & F. Thomas Juster & Matthew D. Shapiro, 1995. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Survey," NBER Working Papers 5213, National Bureau of Economic Research, Inc.
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