When does aggregation reduce risk aversion?

Abstract

We study the problem of risk sharing within a household or syndicate. A household shares risky prospects using a social welfare functional. We characterize the social welfare functionals such that the household is collectively less risk averse than each member, and satisfies the Pareto principle and an invariance axiom. We single out the sum of certainty equivalents as the unique member of this family which is quasiconcave over riskless allocations.

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