Midlands State University Library

Assortative matching of risk-averse agents with endogenous risk

Li Sanxi

Assortative matching of risk-averse agents with endogenous risk created by Sanxi Li, Hailin Sun and Pu Chen - Journal of Economics Volume 109, number 1 .

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.

09318658


Assortative matching--Endogenous risk--Efficient risk sharing

HB171.5 JOU