Suppose Four Identical, Risk-Averse Individuals Form a Partnership to Share

question 36

Essay

Suppose four identical, risk-averse individuals form a partnership to share equally the profit or loss from an investment.
(a) What is the effect on each individual's expected profit and certainty equivalent (CE)?
(b) What happens to the total value of the syndicate as the risk is split among more and moreindividuals?

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