Heterogeneity and the formation of risk - sharing coalitions

We offer a new explanation of partial risk sharing based on coalition formation and segmentation of society in a risky environment, without assuming limited commitment and imperfect information. Heterogenous individuals in a society freely choose with whom they will share risk. A partition belonging to the core of the membership game obtains. Perfect risk sharing does not necessarily arise. Focusing on mutual insurance rule and assuming that individuals only differ with respect to risk, we show that the core partition is homophily-based. The distribution of risk affects the number and size of these coalitions. Individuals may pay a lower risk premium in riskier societies. A higher heterogeneity in risk leads to a lower degree of risk sharing. We discuss how the endogenous partition of society into risk-sharing coalitions may shed light on empirical evidence on partial risk sharing. The case of heterogenous risk aversion leads to similar results.

Foreign perception of sovereign risk : an event study of the colombian armed conflict

Este paper estudia la relación entre algunos de los eventos más importantes del conflicto colombiano con la percepción extranjera de riesgo soberano, medido por los Credit Default Swaps (CDS) de los bonos del Gobierno Colombiano. Usando dos metodologías relativamente recientes, yo estimo el efecto causal de los eventos de conflicto ampliamente cubierto por los medios internacionales. En primer lugar construyo un grupo de control sintético que funciona como contra factual de la serie real de los CDS colombianos pero en ausencia de eventos de conflicto. Segundo, estimo el efecto acumulado del evento bajo la metodología de retornos anormales acumulados. Los resultados sugieren que los efectos de los eventos de conflicto sobre la percepción extranjera de riesgo soberano dependen de las especificaciones de cada evento.

Does uncertainty cause inertia in decision making? An experimental study of the role of regret aversion and indecisiveness

Previous research has shown that often there is clear inertia in individual decision making---that is, a tendency for decision makers to choose a status quo option. I conduct a laboratory experiment to investigate two potential determinants of inertia in uncertain environments: (i) regret aversion and (ii) ambiguity-driven indecisiveness. I use a between-subjects design with varying conditions to identify the effects of these two mechanisms on choice behavior. In each condition, participants choose between two simple real gambles, one of which is the status quo option. I find that inertia is quite large and that both mechanisms are equally important.