When the return to a risky asset is altered, an investor's optimal portfolio is likely to change. In working out the details of these changes for expected utility maximizing investors, previous research has focused on portfolios composed of one risky and one riskless asset or two independent...

The purpose of this paper is to investigate the direction of change in the optimal value of the choice variable following a deterministic transformation of the underlying random variable. Here, the author considers transformations representing either first or second degree stochastically...

The purpose of this paper is to illustrate how a t wo-part compensation system composed of a rigid base salary and a fle xible bonus can reduce turnover. It is shown that bonus pay is an eff ective retention device if it is risk reducing and is correlated with outside contract offers. For the...

Illegal tying often occurs when a monopolist jointly sells a product with a complementary requirement, also sold competitively. Along with selling the complement at its competi tive price, this paper shows that profit can increase when a monopoli st lets consumers bundle any amount of the...

This paper analyzes the effect of wage-rate uncertainty on long-run competitive equilibrium for a labor market made up of heterogeneous workers. The authors show that, if workers are risk-averse, an increase in wage rate uncertainty always lowers aggregate hours of work and increases the...

The present paper extends to higher degrees the well-known separation theorem decomposing a shift in the increasing convex order into a combination of a shift in the usual stochastic order followed by another shift in the convex order. An application in decision making under risk is provided to...

The Arrow-Pratt (A-P) definitions of absolute and relative risk aversion dominate the discussion of risk aversion and defining “more risk averse”. Ross (Econometrica 49:621–663, <CitationRef CitationID="CR17">1981</CitationRef>) notes, however, that being A-P more risk averse is not sufficient for addressing many important...</citationref>

This paper defines the rate of substitution of one stochastic change to a random variable for another. It then focuses on the case where one of these changes is an nth degree risk increase, and the other is an mth degree risk increase, where nm⩾1. The paper shows that the rate of substitution...

This paper presents and implements a procedure which examines for empirical support for the location and scale condition. The Kolmogorov-Smirnov multisample test is used to determine if the distribution functions describing the nonsystematic risk component of rate of return for portfolios of...