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Matching to Share Risk

By Philip J. Reny

Abstract

We consider a matching model in which individuals belonging to two populations (‘males’and ‘females’) can match to share their exogenous income risk. Within each population, individuals can be ranked by risk aversion in the Arrow-Pratt sense. The model permits non transferable utility, a context in which few general results have previously been derived. We show that in this framework (i) a stable matching always exists, (ii) it is essentially unique, and (iii) it is negatively assortative: for any two couples, the more risk averse male is matched with the less risk averse female. We discuss the implications of these results for the empirical analysis of risk-sharing. 1

Year: 2005
OAI identifier: oai:CiteSeerX.psu:10.1.1.321.9526
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