Which Shape for the Cost Curve of Risk?

It is often suggested that the larger the size of risk, the larger our willingness to pay (WTP) for a given reduction of this risk. We show that this is not true in general in the expected utility model. We examine under which conditions the WTP for a marginal reduction in the size of risk is increasing. We also examine the closely related question of whether the risk premium is superadditive in the size of risk.

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Year of publication:	1998
Authors:	Eeckhoudt, L. ; Gollier, C.
Institutions:	Groupe de Recherche en Économie Mathématique et Quantitative (GREMAQ), Toulouse School of Economics (TSE)
Subject:	RISK

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Series:	Toulouse - GREMAQ.
Type of publication:	Book / Working Paper
Notes:	19 pages
Classification:	D81 - Criteria for Decision-Making under Risk and Uncertainty ; D83 - Search, Learning, Information and Knowledge
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005639403