IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2204.04794.html
   My bibliography  Save this paper

Willingness to pay, surplus and Insurance policy under dual theory

Author

Listed:
  • Neji Saidi

Abstract

In this paper, we aims to state some proprieties of willingness to pay (WTP) for partial risk reduction and links with insurance within the dual theory of decision. In the case of partial reduction, we get as Langlais (2005) that a risk-averse decision maker (DM) can have a willingness to pay small than this of a neutral one. By decomposition the WTP as Courbage and al (2008), we get that a strong averse DM is willing to give more for a reduction of a high probability portion rather than a low probability one. The main result is that in the dual theory, reducing probability of risk and supply insurance can be complementary if the surplus is increasing in risk reduction.

Suggested Citation

  • Neji Saidi, 2022. "Willingness to pay, surplus and Insurance policy under dual theory," Papers 2204.04794, arXiv.org.
    • Handle: RePEc:arx:papers:2204.04794
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2204.04794
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Yaari, Menahem E, 1987. "The Dual Theory of Choice under Risk," Econometrica, Econometric Society, vol. 55(1), pages 95-115, January.
    2. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    3. Doherty, Neil A & Eeckhoudt, Louis, 1995. "Optimal Insurance without Expected Utility: The Dual Theory and the Linearity of Insurance Contracts," Journal of Risk and Uncertainty, Springer, vol. 10(2), pages 157-179, March.
    4. Dionne, Georges & Eeckhoudt, Louis, 1985. "Self-insurance, self-protection and increased risk aversion," Economics Letters, Elsevier, vol. 17(1-2), pages 39-42.
    5. Christophe Courbage, 2001. "Self-Insurance, Self-Protection and Market Insurance within the Dual Theory of Choice," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 26(1), pages 43-56, June.
    6. 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.
    7. Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-648, July-Aug..
    8. Eric Langlais, 2005. "Willingness to Pay for Risk Reduction and Risk Aversion without the Expected Utility Assumption," Post-Print hal-00279144, HAL.
    9. Chateauneuf, A. & Cohen, M. & Meilijson, I., 1997. "New Tools to Better Model Behavior Under Risk and UNcertainty: An Oevrview," Papiers d'Economie Mathématique et Applications 97.55, Université Panthéon-Sorbonne (Paris 1).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sarah Bensalem, 2020. "Self-insurance and Non-concave Distortion Risk Measures," Working Papers hal-02936349, HAL.
    2. Courbage, Christophe & Rey, Béatrice & Treich, Nicolas, 2013. "Prevention and precaution," TSE Working Papers 13-445, Toulouse School of Economics (TSE).
    3. Trabelsi, Mohamed Ali, 2008. "Les nouveaux modèles de décision dans le risque et l’incertain : quel apport ? [The new models of decision under risk or uncertainty: What approach?]," MPRA Paper 83347, University Library of Munich, Germany, revised 2008.
    4. Wing Yan Lee & Derrick W. H. Fung, 2021. "Optimal Effort on Self-Insurance-Cum-Protection: A New Analysis Using Yaari’s Dual Theory," Mathematics, MDPI, vol. 9(22), pages 1-12, November.
    5. Trabelsi, Mohamed Ali, 2006. "Les nouveaux modèles de décision dans le risque et l’incertain : quel apport ? [The new models of decision under risk or uncertainty : What approach?]," MPRA Paper 25442, University Library of Munich, Germany.
    6. Pannequin, François & Corcos, Anne & Montmarquette, Claude, 2020. "Are insurance and self-insurance substitutes? An experimental approach," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 797-811.
    7. Bensalem, Sarah & Santibáñez, Nicolás Hernández & Kazi-Tani, Nabil, 2020. "Prevention efforts, insurance demand and price incentives under coherent risk measures," Insurance: Mathematics and Economics, Elsevier, vol. 93(C), pages 369-386.
    8. Sarah Bensalem & Nicolás Hernández Santibáñez & Nabil Kazi-Tani, 2019. "Prevention efforts, insurance demand and price incentives under coherent risk measures," Working Papers hal-01983433, HAL.
    9. Henri Loubergé, 1998. "Risk and Insurance Economics 25 Years After," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 23(4), pages 540-567, October.
    10. Trabelsi, Mohamed Ali, 2006. "Les Nouveaux Modèles de Décision dans le Risque et l’Incertain : Quel Apport ? [The New Models of Decision Under Risk or Uncertainty : What Approach?]," MPRA Paper 76954, University Library of Munich, Germany.
    11. Han Bleichrodt, 2022. "The prevention puzzle," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 47(2), pages 277-297, September.
    12. Grechuk, Bogdan & Zabarankin, Michael, 2014. "Risk averse decision making under catastrophic risk," European Journal of Operational Research, Elsevier, vol. 239(1), pages 166-176.
    13. Christian Gollier & James Hammitt & Nicolas Treich, 2013. "Risk and choice: A research saga," Journal of Risk and Uncertainty, Springer, vol. 47(2), pages 129-145, October.
    14. Louis Eeckhoudt & Philippe Godfroid, 1998. "The market value of preventive activities: A contingent-claims approach," Journal of Economics, Springer, vol. 68(1), pages 27-38, February.
    15. Trabelsi, Mohamed Ali, 2010. "Choix de portefeuille: comparaison des différentes stratégies [Portfolio selection: comparison of different strategies]," MPRA Paper 82946, University Library of Munich, Germany, revised 01 Dec 2010.
    16. Alain Chateauneuf & Michèle Cohen & Mina Mostoufi & Jean-Christophe Vergnaud, 2015. "Optimality of deductible for Yaari's model: a reappraisal," Documents de travail du Centre d'Economie de la Sorbonne 15072, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    17. Stéphane Couture & Marielle Brunette & François Pannequin & Anne Corcos, 2016. "The self-insurance clauses puzzle : risk versus ambiguity," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-02801783, HAL.
    18. Brunette Marielle & Corcos Anne & Couture Stéphane & Pannequin François, 2019. "On the uselessness of self-insurance clauses?," Economics Bulletin, AccessEcon, vol. 39(2), pages 830-837.
    19. Eeckhoudt, Louis R. & Laeven, Roger J.A. & Schlesinger, Harris, 2020. "Risk apportionment: The dual story," Journal of Economic Theory, Elsevier, vol. 185(C).
    20. Gauchon, Romain & Loisel, Stéphane & Rullière, Jean-Louis & Trufin, Julien, 2020. "Optimal prevention strategies in the classical risk model," Insurance: Mathematics and Economics, Elsevier, vol. 91(C), pages 202-208.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2204.04794. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.