## A New Method of Estimating Risk Aversion

Venue: | THE AMERICAN ECONOMIC REVIEW XCVI |

Citations: | 34 - 1 self |

### BibTeX

@ARTICLE{Chetty_anew,

author = {Raj Chetty},

title = {A New Method of Estimating Risk Aversion},

journal = {THE AMERICAN ECONOMIC REVIEW XCVI},

year = {},

pages = {1821--1834}

}

### Years of Citing Articles

### OpenURL

### Abstract

This paper develops a new method of estimating risk aversion using data on labor supply behavior. In particular, I show that existing evidence on labor supply behavior places a tight upper bound on risk aversion in the expected utility model. I derive a formula for the coefficient of relative risk aversion ( ) in terms of (1) the ratio of the income elasticity of labor supply to the wage elasticity and (2) the degree of complementarity between consumption and labor. I bound the degree of complementarity using data on consumption choices when labor supply varies randomly across states. Using labor supply elasticity estimates from thirty-three studies, I find a mean estimate of 1: I then show that generating> 2 would require that wage increases cause sharper reductions in labor supply than estimated in any of the studies.