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17
Saving, Risk Sharing and Preferences for Risk
 American Economic Review
, 2004
"... Saving decisions are made jointly by household members who generally earn risky incomes. Consequently, to interpret saving patterns it is crucial to analyze the relationship between intrahousehold risk sharing and intertemporal choices. To that end in this paper the household is characterized as a ..."
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Cited by 32 (3 self)
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Saving decisions are made jointly by household members who generally earn risky incomes. Consequently, to interpret saving patterns it is crucial to analyze the relationship between intrahousehold risk sharing and intertemporal choices. To that end in this paper the household is characterized as a group of agents with possibly heterogeneous preferences making efficient decisions. Two results are obtained. First, it is shown that risk sharing can increase the amount saved by the household. Second, I find that an increase in risk aversion and prudence of an individual member can reduce household risk aversion and prudence. These results are consistent with the empirical evidence collected using the HRS. 1
Financial Markets Equilibrium with Heterogenous Agents, Review of Finance, forthcoming
, 2011
"... This paper presents an equilibrium model in a pure exchange economy when investors have three possible sources of heterogeneity. Investors may differ in their beliefs, in their level of risk aversion and in their time preference rate. We study the impact of investors heterogeneity on the properties ..."
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Cited by 21 (1 self)
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This paper presents an equilibrium model in a pure exchange economy when investors have three possible sources of heterogeneity. Investors may differ in their beliefs, in their level of risk aversion and in their time preference rate. We study the impact of investors heterogeneity on the properties of the equilibrium. In particular, we analyze the consumption shares, the market price of risk, the risk free rate, the bond prices at different maturities, the stock price and volatility as well as the stock’s cumulative returns, and optimal portfolio strategies. We relate the heterogeneous economy with the family of associated homogeneous economies with only one class of investors. We consider cross sectional as well as asymptotic properties.
Heterogeneous risk attitudes in a continuoustime model, Japanese Economic Review 57
, 2006
"... We prove that every continuoustime model in which all consumers have timehomogeneous and timeadditive utility functions and share a common probabilistic belief and a common discount rate can be reduced to a static model. This result allows us to extend some of the existing results on the represen ..."
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Cited by 7 (5 self)
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We prove that every continuoustime model in which all consumers have timehomogeneous and timeadditive utility functions and share a common probabilistic belief and a common discount rate can be reduced to a static model. This result allows us to extend some of the existing results on the representative consumer and risksharing rules in static models to continuoustime models. We show that the equilibrium interest rate is lower and more volatile than in the standard representative consumer economy, and that the individual consumption growth rates are more dispersed than is predicted from the firstorder conditions.
2003), Collective Investment Decision Making with Heterogeneous Time Preference. CESifo working paper No
"... time preferences ..."
Heterogeneous impatience in a continuoustime model, working paper
, 2007
"... In a continuoustime economy with complete markets, we study how the heterogeneity in the individual consumers ’ risk tolerance and impatience affects the representative consumer’s risk tolerance and impatience. We derive some formulas, which indicate that the representative consumer’s impatience de ..."
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Cited by 1 (1 self)
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In a continuoustime economy with complete markets, we study how the heterogeneity in the individual consumers ’ risk tolerance and impatience affects the representative consumer’s risk tolerance and impatience. We derive some formulas, which indicate that the representative consumer’s impatience decrease over time, and whether his risk tolerance increases or decreases over time depends on the sign of some weighted covariance between the individual consumers’ cautiousness (derivative of risk tolerance with respect to own consumptions) and impatience. These results are then used to show that the short rate tends to decrease over time and the market price of risk is volatile in some special cases of heterogeneous economies.
IOWA STATE UNIVERSITY On the Nature of Certainty Equivalent Functionals
, 2006
"... disability, or status as a U.S. veteran. Inquiries can be directed to the Director of Equal Opportunity and Diversity, 3680 Beardshear Hall, (515) 2947612. On the nature of certainty equivalent functionals ..."
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disability, or status as a U.S. veteran. Inquiries can be directed to the Director of Equal Opportunity and Diversity, 3680 Beardshear Hall, (515) 2947612. On the nature of certainty equivalent functionals
4 We are grateful for their helpful comments to Kazunori Araki, Jeremy Edwards, Günter Franke,
, 2006
"... the editors and referees for their extremely valuable suggestions on both the contents and exposition of the paper. 5 The genesis of this paper is as follows. Huang (2000a, 2000b) had first obtained most of the results in this paper. Working independently, Hara and Kuzmics established similar result ..."
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the editors and referees for their extremely valuable suggestions on both the contents and exposition of the paper. 5 The genesis of this paper is as follows. Huang (2000a, 2000b) had first obtained most of the results in this paper. Working independently, Hara and Kuzmics established similar results in a series of manuscripts since December 2001. These outputs are now merged into this paper. Its exposition We study the representative consumer’s risk attitude and efficient risksharing rules in a singleperiod, singlegood economy in which consumers have homogeneous probabilistic beliefs but heterogeneous risk attitudes. We prove that if all consumers have convex absolute risk tolerance, so must the representative consumer. We also identify a relationship between the curvature of an individual consumer’s individual risk sharing rule and his absolute cautiousness, the first derivative of absolute risktolerance. Furthermore, we discuss some consequences of these results and refinements of these results for the class of HARA utility functions.
No. 1014 Characterizing the Amount and Speed of Discounting Procedures
"... This paper introduces the concept of categorizing the amount and speed of a discounting procedure in order to generate wellcharacterized families of procedures for use in social project evaluation. Exponential discounting isolates the concepts of amount and speed into a single parameter that must b ..."
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This paper introduces the concept of categorizing the amount and speed of a discounting procedure in order to generate wellcharacterized families of procedures for use in social project evaluation. Exponential discounting isolates the concepts of amount and speed into a single parameter that must be disaggregated in order to characterize nonconstant rate procedures. The inverse of the present value of a unit stream of benefits provides a natural measure of the amount a procedure discounts the future. We propose geometrical and time horizonbased measures of how rapidly a procedure acquires its ultimate present value, and we prove these values are the same. This equivalency provides an unambiguous measure of the speed of discounting, with values between 0 (slow) and 2 (fast). Exponential discounting has a speed of 1. A commonly proposed approach to aggregating individual discounting procedures into a social one for project evaluation averages the individual functions. We point to a serious shortcoming with this approach and propose an alternative for which the amount and time horizon of the social procedure are the average values of the amounts and time horizons of the individual procedures. We further show that this social procedure will in general be slower than the average of the individual procedures ’ speeds. We then characterize three families of twoparameter discounting procedures—hyperbolic, gamma, and Weibull—in terms of their discount functions, discount rate functions, amounts, speeds, and time horizons. (The appendix characterizes additional families, including the quasihyperbolic procedure.) A oneparameter version of hyperbolic