scholarly journals Partnerships of Bidders with Constant Relative Risk Aversions

2020 ◽  
Vol 2020 ◽  
pp. 1-7
Author(s):  
Pingping Zhao ◽  
Kaili Xiang ◽  
Peimin Chen
Keyword(s):  
Relative Risk ◽  
Risk Aversion ◽  
Relative Risk Aversion ◽  
Unique Equilibrium ◽  
Risk Neutral ◽  
Bid Price ◽  
Risk Aversion Coefficient ◽  
Constant Relative Risk Aversion ◽  
The Difference

In this paper, we study a dynamic auction for allocating a single indivisible project while different participants have different bid values for the project. When the price rises continuously, the bidders can retreat the auction and obtain the compensation by the difference between the price at retreating time and the previous bid price. The final successful bidder achieves the project and pays compensations to others. We show that the auction of bidders with constant relative risk aversion (CRRA) has a unique equilibrium. While the relative risk aversion coefficient approaches to zero, the equilibrium with CRRA bidders would approach to the equilibrium with risk-neutral bidders.

scholarly journals The Burden of the Nondiversifiable Risk of Entrepreneurship

2010 ◽  
Vol 100 (3) ◽  
pp. 1163-1194 ◽  
Author(s):  
Robert E Hall ◽  
Susan E Woodward
Keyword(s):  
Relative Risk ◽  
Risk Aversion ◽  
Venture Capital ◽  
Dynamic Program ◽  
Certainty Equivalent ◽  
Important Class ◽  
Relative Risk Aversion ◽  
The Past ◽  
Equity Value ◽  
The Difference

Entrepreneurship is risky. We study the risk facing a well-documented and important class of entrepreneurs, those backed by venture capital. Using a dynamic program, we calculate the certainty-equivalent of the difference between the cash rewards that entrepreneurs actually received over the past 20 years and the cash that entrepreneurs would have received from a risk-free salaried job. The payoff to a venture-backed entrepreneur comprises a below-market salary and a share of the equity value of the company when it goes public or is acquired. We find that the typical venture-backed entrepreneur received an average of $5.8 million in exit cash. Almost three-quarters of entrepreneurs receive nothing at exit and a few receive over a billion dollars. Because of the extreme dispersion of payoffs, an entrepreneur with a coefficient of relative risk aversion of two places a certainty equivalent value only slightly greater than zero on the distribution of outcomes she faces at the time of her company's launch. (JEL G24, G32, L26, M13)

A Simplified Measure of Investor Risk Aversion

2020 ◽  
pp. 026010792092451
Author(s):  
John Grable ◽  
Eun Jin Kwak ◽  
Martha Fulk ◽  
Aditi Routh
Keyword(s):  
United States ◽  
Relative Risk ◽  
Risk Aversion ◽  
Risk Taking ◽  
Measurement Techniques ◽  
Revealed Preference ◽  
The United States ◽  
Relative Risk Aversion ◽  
Measures Of Risk ◽  
Constant Relative Risk Aversion

This article introduces a simplified measure of investor risk aversion. The singleitem question combines elements from revealed preference and propensity measurement techniques in a way that matches traditional constant relative risk-aversion estimation procedures. Based on survey data from 500 investors living in the United States, scores from the proposed measure were found to correlate with other measures of risk aversion, as well as with indicators of risk-taking. A validity test showed that answers to the proposed measure were statistically associated with equity and cash ownership holdings in respondent portfolios. The simplicity and intuitive nature of the proposed measure and the alignment of question response categories to estimates of constant relative risk aversion make this a potentially valuable addition to the toolkit of researchers, financial educators, investors and those who provide advice to investors. JEL: C83, D10, D11, D14, D19, D81

Progressive and Regressive Equilibria in a Tax Competition Game

2015 ◽  
Vol 45 (3) ◽  
pp. 307-333
Author(s):  
James Green-Armytage
Keyword(s):  
Relative Risk ◽  
Risk Aversion ◽  
Tax Competition ◽  
Continuous Distribution ◽  
Relative Risk Aversion ◽  
Interjurisdictional Competition ◽  
Benchmark Model ◽  
Optimal Policies ◽  
Risk Aversion Coefficient ◽  
Tax Structures

This article models interjurisdictional competition over nonlinear taxes on the incomes of mobile individuals. Each individual has exogenous wealth and a location preference that is drawn from a continuous distribution. We find that more concave utility of consumption functions lead to more progressive tax structures, as richer people place less value on marginal consumption relative to location. In the benchmark model, a relative risk aversion coefficient of one is the boundary between progressivity and regressivity. The exercise helps us to understand which types of jurisdictions are more likely to have progressive taxes as their optimal policies.

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