American Economic Review Vol. 102 No. 1 2012

Testing Efficient Risk Sharing with Heterogeneous Risk Preferences

Maurizio Mazzocco¹; Shiv Kumar Saini²

¹ University of California at Los Angeles, Department of Economics, 8283 Bunche Hall, Los Angeles, CA 90095. · ² Cornerstone Research, 599 Lexington Avenue, New York, NY 10022-7642.

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.

DOI

10.1257/aer.102.1.428

Volume

102

Issue

1

Pages

428-468

Language

en

Sources

bibtex:phds-export.bib openalex crossref

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