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Heterogeneity in risk aversion and risk sharing regressions

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  • Pierfederico Asdrubali
  • Simone Tedeschi
  • Luigi Ventura

Abstract

Heterogeneity in risk attitudes, if not properly accounted for, may induce a bias on the income coefficient of standard consumption insurance regressions. We show that, extending the theoretical analysis and empirical findings in Schulhofer‐Wohl (Journal of Political Economy, 2011, 119, 925–958), the sign of the bias is ambiguous, and depends on cycle‐related variables and on the covariances of both aggregate and idiosyncratic risk with individual risk aversion.

Suggested Citation

  • Pierfederico Asdrubali & Simone Tedeschi & Luigi Ventura, 2019. "Heterogeneity in risk aversion and risk sharing regressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 34(5), pages 827-835, August.
  • Handle: RePEc:wly:japmet:v:34:y:2019:i:5:p:827-835
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    File URL: https://doi.org/10.1002/jae.2686
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