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Published November 2012 | Draft
Journal Article Open

When does aggregation reduce risk aversion?


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.

Additional Information

© 2012 Elsevier Inc. Received 18 May 2011; Available online 14 August 2012. We thank David Ahn, Kim Border, and Massimo Marinacci for comments, and SangMok Lee for excellent research assistance. We are also extremely grateful to two anonymous referees and the associate editor for many detailed comments, suggestions, and corrections. Our research was supported by the National Science Foundation through grant SES-0751980.

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