A Fast Literature Search Engine based on top-quality journals, by Dr. Mingze Gao.

  • Topic classification is ongoing.
  • Please kindly let me know [mingze.gao@mq.edu.au] in case of any errors.

A New Method of Estimating Risk Aversion

Resource type
Author/contributor
Title
A New Method of Estimating Risk Aversion
Abstract
I show existing evidence on labor supply behavior places an upper bound on risk aversion in the expected utility model. I derive a formula for the coefficient of relative risk aversion (γ) in terms of the ratio of the income elasticity of labor supply to wage elasticity and degree of complementarity between consumption and labor. I bound the degree of complementarity using data on consumption choices when labor supply varies across states. Using labor supply elasticity estimates, I find a mean estimate of γ ≈ 1, then show generating γ > 2 requires that wage increases cause sharper labor supply reductions. (JEL D81 J22 )
Publication
American Economic Review
Volume
96
Issue
5
Pages
1821-1834
Date
2006-12
Citation
Chetty, R. (2006). A New Method of Estimating Risk Aversion. American Economic Review, 96, 1821–1834.
Link to this record