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Willingness to Pay for Risk Reduction and Risk Aversion without the Expected Utility Assumption

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  • Eric Langlais

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Abstract

By means of minimal assumptions on the individual preferences, I show that the Willingness To Pay (WTP) for both a FSD and SSD reduction of risk is the sum of a mean effect, a pure risk effect and a wealth effect. As a result, the WTP of a risk-averse decision maker may be lower than the WTP of a risk-neutral one, for a large class of individual preferences’ representation and a large class of risks. Copyright Springer 2005

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File URL: http://hdl.handle.net/10.1007/s11238-005-7303-9
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Bibliographic Info

Article provided by Springer in its journal Theory and Decision.

Volume (Year): 59 (2005)
Issue (Month): 1 (08)
Pages: 43-50

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Handle: RePEc:kap:theord:v:59:y:2005:i:1:p:43-50

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Web page: http://www.springerlink.com/link.asp?id=100341

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Keywords: Risk premium; willingness to pay; first and second stochastic dominance shifts in risk;

References

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  1. Ross, Stephen A, 1981. "Some Stronger Measures of Risk Aversion in the Small and the Large with Applications," Econometrica, Econometric Society, vol. 49(3), pages 621-38, May.
  2. Eeckhoudt, L. & Godfroid, Ph. & Gollier, C., 1997. "Willingness to pay, the risk premium and risk aversion," Economics Letters, Elsevier, vol. 55(3), pages 355-360, September.
  3. Ian Jewitt, 1989. "Choosing Between Risky Prospects: The Characterization of Comparative Statics Results, and Location Independent Risk," Management Science, INFORMS, vol. 35(1), pages 60-70, January.
  4. Jewitt, Ian, 1987. "Risk Aversion and the Choice between Risky Prospects: The Preservation of Comparative Statics Results," Review of Economic Studies, Wiley Blackwell, vol. 54(1), pages 73-85, January.
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Citations

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Cited by:
  1. Eric LANGLAIS, 2009. "Deterrence Of A Criminal Team: How To Rely On Its Members' Short Comings ?," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 4(1(7)_ Spr).
  2. Arcand, Jean-Louis & Mbaye, Linguère Mously, 2013. "Braving the Waves: The Role of Time and Risk Preferences in Illegal Migration from Senegal," IZA Discussion Papers 7517, Institute for the Study of Labor (IZA).
  3. Courbage, Christophe & Rey, Béatrice & Treich, Nicolas, 2013. "Prevention and precaution," TSE Working Papers 13-445, Toulouse School of Economics (TSE).
  4. Eric Langlais, 2009. "Deterrence of a criminal team: how to rely on its members’ shortcomings?," Cahiers du CEREFIGE 0902, CEREFIGE (Centre Europeen de Recherche en Economie Financiere et Gestion des Entreprises), Universite de Lorraine, revised 2009.
  5. Jean-Louis Arcand & Linguère Mously MBAYE, 2013. "Braving the waves: the role of time and risk preferences in illegal migration from Senegal," Working Papers halshs-00855937, HAL.

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