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Heterogeneity in risk aversion and risk sharing regressions
Author(s) -
Asdrubali Pierfederico,
Tedeschi Simone,
Ventura Luigi
Publication year - 2019
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.2686
Subject(s) - econometrics , economics , risk aversion (psychology) , consumption (sociology) , sign (mathematics) , aggregate (composite) , financial economics , expected utility hypothesis , mathematics , mathematical analysis , social science , materials science , sociology , composite material
Summary Heterogeneity in risk attitudes, if not properly accounted for, may induce a bias on the income coefficient of standard consumption insurance regressions. We show that, extending the theoretical analysis and empirical findings in Schulhofer‐Wohl ( Journal of Political Economy , 2011, 119 , 925–958), the sign of the bias is ambiguous, and depends on cycle‐related variables and on the covariances of both aggregate and idiosyncratic risk with individual risk aversion.