Testing Efficient Risk Sharing with Heterogeneous Risk Preferences
American Economic Review
vol. 102,
no. 1, February 2012
(pp. 428-68)
Abstract
We propose a method that enables one to test efficient risk sharing even when households have different risk preferences. The method is composed of three tests. The first one determines whether in the data households have homogeneous risk preferences. The second and third tests evaluate efficient risk sharing when the hypothesis of homogeneous risk preferences is rejected. We use this method to test efficient risk sharing in rural India. Using the first test, we strongly reject the hypothesis of identical risk preferences. Using the second and third tests, we reject efficiency at the village but not at the caste level. (JEL D12, D86, G22, O12, O18, R23, Z13)Citation
Mazzocco, Maurizio, and Shiv Saini. 2012. "Testing Efficient Risk Sharing with Heterogeneous Risk Preferences." American Economic Review, 102 (1): 428-68. DOI: 10.1257/aer.102.1.428Additional Materials
JEL Classification
- D12 Consumer Economics: Empirical Analysis
- D86 Economics of Contract: Theory
- G22 Insurance; Insurance Companies
- O12 Microeconomic Analyses of Economic Development
- O18 Economic Development: Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
- R23 Urban, Rural, Regional, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics
- Z13 Economic Sociology; Economic Anthropology; Social and Economic Stratification