The effect of replacing an agent in a two-person two-state finance economy by a more risk averse agent is studied. It is established under which conditions the other agent benefits or looses in equilibrium from dealing with a more risk averse agent. If one agent becomes more risk averse, then the equilibrium allocation moves towards that agent's certainty line. Whether or not that is beneficial for the other agent depends on the location of the endowment point.
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On the Effect of Risk Aversion in Two-Person, Two-State Finance Economies
1Maastricht University, c.berden@ke.unimaas.nl
2Maastricht University, h.peters@ke.unimaas.nl
Citation Information: The B.E. Journal of Theoretical Economics. Volume 7, Issue 1, Pages –, ISSN (Online) 1935-1704, DOI: 10.2202/1935-1704.1394, January 2008
Publication History:
- Published Online:
- 2008-01-03
Keywords: two-person two-state finance economies; risk aversion
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