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Risk Aversion Heterogeneity, Risky Jobs And Wealth Inequality

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  • Marco Cozzi

    (Queen)

Abstract

This paper considers the macroeconomic implications of a set of empirical studies finding a high degree of dispersion in preferences for risk. It develops a model with risk aversion heterogeneity, uninsurable idiosyncratic income risk, and (with or without) self-selection into risky jobs to quantify their effects on the distribution of wealth. The results show that the role of risk aversion heterogeneity is quantitatively important. When estimating the risk aversion distribution with the appropriate PSID data on income lotteries, the model matches the observed degree of wealth inequality in the U.S., accounting for both the wealth Gini index and other key features of the wealth distribution. It is also shown that neglecting risk preference heterogeneity has a first order effect on the aggregate allocations.

Suggested Citation

  • Marco Cozzi, 2012. "Risk Aversion Heterogeneity, Risky Jobs And Wealth Inequality," Working Paper 1286, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:1286
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    Cited by:

    1. Doepke, Matthias & Zilibotti, Fabrizio, 2014. "Culture, Entrepreneurship, and Growth," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 0, pages 1-48, Elsevier.
    2. Marco Cozzi, 2014. "Heterogeneity In Macroeconomics And The Minimal Econometric Interpretation For Model Comparison," Working Paper 1333, Economics Department, Queen's University.
    3. Tyler Abbot, 2017. "General Equilibrium Under Convex Portfolio Constraints and Heterogeneous Risk Preferences," Papers 1706.05877, arXiv.org, revised Jun 2018.
    4. Boitani, Andrea & Punzo, Chiara, 2019. "Banks’ leverage behaviour in a two-agent new Keynesian model," Journal of Economic Behavior & Organization, Elsevier, vol. 162(C), pages 347-359.

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    More about this item

    Keywords

    Wealth Inequality; Heterogeneous Agents; Incomplete Markets; Computable General Equilibrium;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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