Heterogeneity in risk aversion and risk sharing regressions

Heterogeneity in risk attitudes, if not properly accounted for, may induce a bias on the income coefficient of standard consumption insurance regressions. We show that, extending the theoretical analysis and empirical findings in Schulhofer-Wohl (Journal of Political Economy, 2011, 119, 925–958), the sign of the bias is ambiguous, and depends on cycle-related variables and on the covariances of both aggregate and idiosyncratic risk with individual risk aversion.