Increasing Risk : Some Direct Constructions

This paper extends the classic Rothschild-Stiglitz characterization of comparative risk (quot;increasing riskquot;) in two directions. By adopting a more general definition of quot;mean preserving spread,quot; it provides a direct construction of a sequence of MPS's linking any pair of distributions that are ranked in terms of comparative risk. It also provides a direct, explicit construction of a zero- conditional-mean quot;noisequot; variable for any such pair of distributions. Both results are extended to the case of second order stochastic dominance