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Dynamic Risk Taking With Indivisible Risks

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  • Gollier, Christian

Abstract

In 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'')'

Suggested Citation

  • Gollier, Christian, 1994. "Dynamic Risk Taking With Indivisible Risks," Working Papers 013, Risk and Insurance Archive.
    • Handle: RePEc:wop:riskar:013
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    References listed on IDEAS

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    1. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
    2. Dreze, Jacques H. & Gollier, Christian, 1993. "Risk sharing on the labour market and second-best wage rigidities," European Economic Review, Elsevier, vol. 37(8), pages 1457-1482, December.
    3. Meade, James E, 1972. "The Theory of Labour-Managed Firms and of Profit Sharing," Economic Journal, Royal Economic Society, vol. 82(325), pages 402-428, Supplemen.
    4. Eeckhoudt, Louis & Gollier, Christian & Levasseur, Michel, 1993. "The Economics of Adding and Subdividing Independent Risks: Some Comparative Statics Results," Journal of Risk and Uncertainty, Springer, vol. 7(3), pages 325-337, December.
    5. Kimball, Miles S, 1993. "Standard Risk Aversion," Econometrica, Econometric Society, vol. 61(3), pages 589-611, May.
    6. Gollier, Christian & John W. PRATT, 1993. "Weak Proper Risk Aversion And The Tempering Effect of Background Risk," Working Papers 018, Risk and Insurance Archive.
    Full references (including those not matched with items on IDEAS)

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