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Risk Aversion Heterogeneity, Risky Jobs and Wealth Inequality

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  • Cozzi, Marco

Abstract

This paper considers the macroeconomic implications of a set of empirical studies finding a high degree of dispersion in preferences for risk. It develops a model with risk aversion heterogene- ity, uninsurable idiosyncratic income risk, and (with or without) self-selection into risky jobs to quantify their effects on the distribution of wealth. The results show that the role of risk aversion heterogeneity is quantitatively important. When estimating the risk aversion distribution with the appropriate PSID data on income lotteries, the model matches the observed degree of wealth inequality in the U.S., accounting for both the wealth Gini index and other key features of the wealth distribution. It is also shown that neglecting risk preference heterogeneity has a first order effect on the aggregate allocations.

Suggested Citation

  • Cozzi, Marco, 2012. "Risk Aversion Heterogeneity, Risky Jobs and Wealth Inequality," Queen's Economics Department Working Papers 274550, Queen's University - Department of Economics.
    • Handle: RePEc:ags:quedwp:274550
    DOI: 10.22004/ag.econ.274550
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    Cited by:

    1. Gianluca Femminis, 2019. "Risk aversion heterogeneity and the investment–uncertainty relationship," Journal of Economics, Springer, vol. 127(3), pages 223-264, August.
    2. Michael Patrick Curran & Scott J. Dressler, 2019. "Preference Heterogeneity, Inflation, and Welfare," Villanova School of Business Department of Economics and Statistics Working Paper Series 40, Villanova School of Business Department of Economics and Statistics.
    3. Park, Seonyoung & Shin, Donggyun, 2020. "Welfare consequences of rising wage risk in the United States: Self-selection into risky jobs and family labor supply adjustments," Working Paper Series 7967, Victoria University of Wellington, School of Economics and Finance.

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