A BEJTE Topics article.

Abstract

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.

Submitted: June 4, 2007 · Accepted: November 12, 2007 · Published: January 3, 2008

Recommended Citation

Berden, Caroline and Peters, Hans (2007) "On the Effect of Risk Aversion in Two-Person, Two-State Finance Economies," The B.E. Journal of Theoretical Economics: Vol. 7 : Iss. 1 (Topics), Article 47.
Available at: http://www.bepress.com/bejte/vol7/iss1/art47