Risk Aversion Heterogeneity, Risky Jobs and Wealth Inequality

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 heterogene- ity, 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.


Issue Date:
2012-12
Publication Type:
Working or Discussion Paper
DOI and Other Identifiers:
Record Identifier:
https://ageconsearch.umn.edu/record/274550
Language:
English
Total Pages:
57
JEL Codes:
E21; D52; D48; C68
Series Statement:
Working Paper No. 1286




 Record created 2018-06-27, last modified 2020-10-28

Fulltext:
Download fulltext
PDF

Rate this document:

Rate this document:
1
2
3
 
(Not yet reviewed)