We examine how different welfarist frameworks evaluate the social value of mortality riskreduction. These frameworks include classical, distributively unweighted cost-benefit analysis—i.e., the “value per statistical life” (VSL) approach—and three benchmark social welfare functions...

This chapter surveys the economic literature on prevention and precaution. Prevention refers as either a self-protection activity – i.e. a reduction in the probability of a loss – or a self-insurance activity – i.e. a reduction of the loss –. Precaution is defined as a prudent and...

Most economic problems combining risk and equity have been studied under utilitarianism. As an alternative, we study consumption decisions under risk assuming a prioritarian social welfare function. Under a standard assumption about the utility function (i.e., decreasing absolute risk aversion),...

As in any research field, risk theory has its important questions, results, and paradoxes, as well as its seminal papers and key authors. Louis Eeckhoudt has been a key author in the field of risk theory. To celebrate his many contributions and continue the development of theories of decision...

We consider a prediction market in which traders have heterogeneous prior beliefs in probabilities. In the two-state case, we derive necessary and sufficient conditions so that the prediction market is accurate in the sense that the equilibrium state price equals the mean probabilities of...

The Willingness-to-Pay approach is the basic justification for the use of the Contingent Valuation method to evaluate public mortality risk reduction programs. However, aggregating unweighted willingness-to-pay is a valid method only when individuals have the same marginal value of money, an...

How does risk perception affect risk regulation? Happyville is a society in which citizens wrongly believe that the drinking water supply is contaminated. We discuss conditions under which a benevolent Director of Environment Protection would invest in a water cleanup technology. This holds if...

There is some evidence that people have biased perceptions of risks, such as lethal or environmental risks. Hence their behavior is based on beliefs which may di¤er from the ’objective’ beliefs used by a regulator. The optimal regulation then depends on this di¤erence in...

Hyperbolic discounting models are widely seen as implying that consumers do not save enough, in accordance with the observed low rates of savings of some households. This paper qualifies this view by showing that hyperbolic consumers may ‘oversave’ in the short run. The result...