Heterogeneity and the formation of risk-sharing coalitions

Abstract : We study the relationship between the distribution of individuals' attributes over the pop-ulation and the extent of risk sharing in a risky environment. We consider a society where individuals voluntarily form risk-sharing groups in the absence of financial markets. We obtain a partition of society into distinct coalitions leading to partial risk sharing. When individuals differ only with respect to risk, the partition is homophily-based: the less risky agents congreg-ate together and reject more risky ones into other coalitions. The distribution of risk affects the number and size of these coalitions. It turns out that individuals may pay a lower risk premium in more risky societies. We show that a higher heterogeneity in risk leads to a lower degree of partial risk sharing. The case of heterogenous risk aversion generates similar results. The empirical evidence on partial risk sharing can be understood when the endogenous partition of society into risk-sharing coalitions is taken into account.
Document type :
Journal articles
Complete list of metadatas

Cited literature [45 references]  Display  Hide  Download

https://halshs.archives-ouvertes.fr/halshs-01075648
Contributor : Anne l'Azou <>
Submitted on : Sunday, October 19, 2014 - 11:50:35 AM
Last modification on : Wednesday, March 13, 2019 - 9:40:04 AM
Long-term archiving on : Tuesday, January 20, 2015 - 10:42:14 AM

File

Heterogeneity and the Formatio...
Files produced by the author(s)

Identifiers

Citation

Fernando Jaramillo, Hubert Kempf, Fabien Moizeau. Heterogeneity and the formation of risk-sharing coalitions. Journal of Development Economics, Elsevier, 2015, 114, pp.79-96. ⟨10.1016/j.jdeveco.2014.09.003⟩. ⟨halshs-01075648⟩

Share

Metrics

Record views

620

Files downloads

1198