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Assortative matching of risk-averse agents with endogenous risk

Author

Listed:
  • Sanxi Li

    ()

  • Hailin Sun

    ()

  • Pu Chen

    ()

Abstract

A standard risk-sharing matching game predicts negative assortative matching over agents’ risk attitudes. In regards to risk sharing, less risk-averse agents prefer highly risk-averse partners, who pay a high risk premium. Negative sorting is, however, inconsistent with empirical and experimental literature. To resolve this conflict, we propose a model where agents can control the risks to their incomes. In regards to risk management, agents prefer similar partners because of their aligned objectives in risk management. When it is easy to control risks or all agents are sufficiently risk-averse, the risk-management effect dominates, leading to positive sorting. Copyright Springer-Verlag Wien 2013

Suggested Citation

  • Sanxi Li & Hailin Sun & Pu Chen, 2013. "Assortative matching of risk-averse agents with endogenous risk," Journal of Economics, Springer, vol. 109(1), pages 27-40, May.
  • Handle: RePEc:kap:jeczfn:v:109:y:2013:i:1:p:27-40
    DOI: 10.1007/s00712-012-0323-3
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    References listed on IDEAS

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    Cited by:

    1. Li, Sanxi & Sun, Hailin & Wang, Tong & Yu, Jun, 2016. "Assortative matching and risk sharing," Journal of Economic Theory, Elsevier, vol. 163(C), pages 248-275.
    2. Luc Arrondel & Nicolas Frémeaux, 2016. "‘For Richer, For Poorer’: Assortative Mating and Savings Preferences," Economica, London School of Economics and Political Science, vol. 83(331), pages 518-543, July.

    More about this item

    Keywords

    Assortative matching; Efficient risk sharing; Endogenous risk; C78; D31; D81; J12;

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • J12 - Labor and Demographic Economics - - Demographic Economics - - - Marriage; Marital Dissolution; Family Structure

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