Income risk aversion with quantity constraints

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 consumer's 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 effect on the coefficient of relative risk aversion, and that a severely rationed consumer may even become less risk averse then when unconstrained.