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Title: On Sharing Risk in Large Economies: Risk and Risk Aversion
Authors: Fesselmeyer, Eric
Mirman, Leonard J.
Santugini, Marc
Keywords: Arrow-Lind Theorem
Entrepreneurial activity
Risk aversion
Risk diversification
Risk neutrality
Risk sharing
Risk spreading
Risk taking
Issue Date: 2012-01
Series/Report no.: Cahiers du CIRPÉE;12-01
Abstract: We study the effect that risk and risk aversion have on risk sharing in large economies with numerous agents. We show that as the economy expands, with all sectors expanding, exposure to risk is not eliminated. The risk premium does not go to zero and financial prices depend on both risk and risk-aversion, i.e., concern for risk does not disappear in the limit. Hence, while a large number of investors spreads risk, risk does not become negligible because the risk premium depends on the level of entrepreneurial activity relative to the size of the economy.
Appears in Collections:Cahiers de recherche du CIRPÉE

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