Testing Efficient Risk Sharing with Heterogeneous Risk Preferences
American Economic Review · 2012 · Volume 102 · Issue 1
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)
Keywords
Consumer Economics: Empirical Analysis, Economics of Contract: Theory, Insurance, Insurance Companies, Microeconomic Analyses of Economic Development, Economic Development: Urban, Rural, Regional, and Transportation Analysis, Housing, Infrastructure, Urban, and Transportation Economics: Regional Migration, Regional Labor Markets, Population, Neighborhood Characteristics, Economic Sociology, Economic Anthropology, Social and Economic Stratification
Enable JavaScript for citation tools and additional paper interactions.