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Assortative matching of risk-averse agents with endogenous risk

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  • Sanxi Li
  • Hailin Sun
  • Pu Chen

Abstract

A standard risk-sharing matching game predicts negative assortative matching over agents’ risk attitudes. In regards to risk sharing, less risk-averse agents prefer highly risk-averse partners, who pay a high risk premium. Negative sorting is, however, inconsistent with empirical and experimental literature. To resolve this conflict, we propose a model where agents can control the risks to their incomes. In regards to risk management, agents prefer similar partners because of their aligned objectives in risk management. When it is easy to control risks or all agents are sufficiently risk-averse, the risk-management effect dominates, leading to positive sorting. Copyright Springer-Verlag Wien 2013

Suggested Citation

  • Sanxi Li & Hailin Sun & Pu Chen, 2013. "Assortative matching of risk-averse agents with endogenous risk," Journal of Economics, Springer, vol. 109(1), pages 27-40, May.
    • Handle: RePEc:kap:jeczfn:v:109:y:2013:i:1:p:27-40
    DOI: 10.1007/s00712-012-0323-3
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    Cited by:

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    2. Eunhee Kim, 2024. "Repeated matching, career concerns, and firm size," Journal of Economics, Springer, vol. 142(1), pages 45-80, June.
    3. Inés Macho-Stadler & David Pérez-Castrillo, 2021. "Agency theory meets matching theory," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 12(1), pages 1-33, March.
    4. Li, Sanxi & Sun, Hailin & Wang, Tong & Yu, Jun, 2016. "Assortative matching and risk sharing," Journal of Economic Theory, Elsevier, vol. 163(C), pages 248-275.
    5. Pu Chen & Sanxi Li & Bing Ye, 2018. "Risk†Sharing Matching And Moral Hazard," Bulletin of Economic Research, Wiley Blackwell, vol. 70(2), pages 165-174, April.
    6. Aristidis K. Nikoloulopoulos & Peter G. Moffatt, 2019. "Coupling Couples With Copulas: Analysis Of Assortative Matching On Risk Attitude," Economic Inquiry, Western Economic Association International, vol. 57(1), pages 654-666, January.

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    More about this item

    Keywords

    Assortative matching; Efficient risk sharing; Endogenous risk; C78; D31; D81; J12;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • J12 - Labor and Demographic Economics - - Demographic Economics - - - Marriage; Marital Dissolution; Family Structure

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