Dynamic Risk Taking With Indivisible Risks
AbstractIn this paper, we examine second-best efficient allocations of risk when some forms of incompleteness are introduced in risk- sharing contracts. In the first model, there are two independent sources of risk, but risk-sharing contracts can be made contingent to only one of the two sources. We examine the condition under which those who bear the non-transferable risk should bear relatively less of the transferable risk in the economy. Decreasing absolute prudence, i.e. -u'''/u'')'
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Bibliographic InfoPaper provided by Risk and Insurance Archive in its series Working Papers with number 013.
Date of creation: May 1994
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risk sharing; background risk; decreasing prudence.;
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