Assortative matching of risk-averse agents with endogenous risk created by Sanxi Li, Hailin Sun and Pu Chen

By:

Li Sanxi [author]

Contributor(s):

Material type: Text

TextSeries: Journal of Economics ; Volume 109, number 1Heidelberg: Springer, 2013Content type:

text

Media type:

unmediated

Carrier type:

volume

ISSN:

09318658

Subject(s):

Assortative matching -- Efficient risk sharing -- Endogenous risk

LOC classification:

HB171.5 JOU

Online resources:

Click here to access online

Abstract: 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.

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Holdings
Item type	Current library	Call number	Vol info	Copy number	Status	Notes	Date due	Barcode
Journal Article	Main Library - Special Collections	HB171.5 JOU (Browse shelf(Opens below))	Vol. 109, no. 1 (pages 27-40)	SP20885	Not for loan	For In house Use

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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.

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