Scandinavian Working Papers in Economics
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Department of Economics, Norwegian School of Economics (NHH) Discussion Paper Series in Economics, Department of Economics, Norwegian School of Economics (NHH)

No 8/2010:
Income risk aversion with quantity constraints.

Fred Schroyen ()

Abstract: In this paper, I consider a consumer with a concave utility function over n commodities and trace out the consequences of quantity constraints on product markets for the consumerís aversion towards income risk. I show that the effect can be decomposed in a cardinal and ordinal term, that both terms may add up to a non-linear effct on the coefficient of relative risk aversion, and that a severely rationed consumer may even become less risk averse then when unconstrained.

Keywords: Household demand; income risk aversion; quantity constraints.; (follow links to similar papers)

JEL-Codes: D11; D81; (follow links to similar papers)

13 pages, February 4, 2010

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