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Representative Consumer's Risk Aversion and Efficient Risk-Sharing Rules

  • Hara, Chiaki
  • Huang, James
  • Kuzmics, Christoph

We study the representative consumer's risk attitude and efficient risk-sharing rules in a singleperiod, single-good economy in which consumers have homogeneous probabilistic beliefs but heterogeneous risk attitudes. We prove that if all consumers have convex absolute risk tolerance, so must the representative consumer. We also identify a relationship between the curvature of an individual consumer's individual risk sharing rule and his absolute cautiousness, the first derivative of absolute risk-tolerance. Furthermore, we discuss some consequences of these results and refinements of these results for the class of HARA utility functions.

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Paper provided by Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University in its series Discussion Paper with number 323.

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Length: 27 p.
Date of creation: Mar 2007
Date of revision:
Handle: RePEc:hit:piedp2:323
Note: November 6, 2006
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  1. Christian Gollier & Richard J. Zeckhauser, 1997. "Horizon Length and Portfolio Risk," NBER Technical Working Papers 0216, National Bureau of Economic Research, Inc.
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  12. Hara, Chiaki & Huang, James & Kuzmics, Christoph, 2007. "Representative Consumer's Risk Aversion and Efficient Risk-Sharing Rules," Discussion Paper 323, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
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  20. repec:dgr:rugsom:00e08 is not listed on IDEAS
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