Crainich, David, Eeckhoudt, Louis
and Hammitt, James K.
(2015)
The Value of Risk Reduction: New Tools for an Old Problem.
Theory and Decision, vol. 79 (n° 3).
pp. 403-413.
Abstract
The relationship between willingness to pay (WTP) to reduce the probability of an adverse event and the degree of risk aversion is ambiguous. The ambiguity arises because paying for protection worsens the outcome in the event the adverse event occurs, which influences the expected marginal utility of wealth. Using the concept of downside risk aversion or prudence, we characterize the marginal WTP to reduce the probability of the adverse event as the product of WTP in the case of risk neutrality and an adjustment factor. For the univariate case (e.g., risk of financial loss), the adjustment factor depends on risk aversion and prudence with respect to wealth. For the bivariate case (e.g., risk of death or illness), the adjustment factor depends on risk aversion and cross-prudence in wealth.
Item Type: | Article |
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Sub-title: | New Tools for an Old Problem |
Language: | English |
Date: | November 2015 |
Refereed: | Yes |
Uncontrolled Keywords: | Risk aversion, prudence, self-protection, value per statistical life |
JEL Classification: | D8 - Information, Knowledge, and Uncertainty I1 - Health |
Subjects: | B- ECONOMIE ET FINANCE |
Divisions: | TSE-R (Toulouse) |
Site: | UT1 |
Date Deposited: | 15 Mar 2016 11:06 |
Last Modified: | 02 Apr 2021 15:51 |
OAI Identifier: | oai:tse-fr.eu:30290 |
URI: | https://publications.ut-capitole.fr/id/eprint/19972 |