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Catastrophe Aversion and Risk Equity in an Interdependent World

Author

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  • Nicolas Treich

    (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique)

  • Carole Bernard

    (EESC-GEM Grenoble Ecole de Management, VUB - Vrije Universiteit Brussel)

  • Christoph M. Rheinberger

    (ECHA - European Chemicals Agency)

Abstract

Catastrophe aversion and risk equity are important concepts both in risk management theory and practice. Keeney [Keeney RL (1980) Equity and public risk. Oper. Res. 28(3):527–534] was the first to formally define these concepts. He demonstrated that the two concepts are always in conflict. Yet his result is based on the assumption that individual risks are independent. It has therefore limited relevance for real-world catastrophic events. We extend Keeney's result to dependent risks and derive the conditions under which more equity and more correlation between two risks imply a more catastrophic situation. We then generalize some of the results for multiple correlated risks.

Suggested Citation

  • Nicolas Treich & Carole Bernard & Christoph M. Rheinberger, 2018. "Catastrophe Aversion and Risk Equity in an Interdependent World," Grenoble Ecole de Management (Post-Print) hal-01948614, HAL.
    • Handle: RePEc:hal:gemptp:hal-01948614
    DOI: 10.1287/mnsc.2017.2859
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    References listed on IDEAS

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    1. Peter C. Fishburn, 1984. "Equity Axioms for Public Risks," Operations Research, INFORMS, vol. 32(4), pages 901-908, August.
    2. Marc Fleurbaey, 2010. "Assessing Risky Social Situations," Journal of Political Economy, University of Chicago Press, vol. 118(4), pages 649-680, August.
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    19. Christoph M. Rheinberger & Nicolas Treich, 2017. "Attitudes Toward Catastrophe," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 67(3), pages 609-636, July.
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    Cited by:

    1. James K. Hammitt, 2020. "Valuing mortality risk in the time of COVID-19," Journal of Risk and Uncertainty, Springer, vol. 61(2), pages 129-154, October.
    2. Al-Najjar, Nabil I. & Pomatto, Luciano, 2020. "Aggregate risk and the Pareto principle," Journal of Economic Theory, Elsevier, vol. 189(C).
    3. Hammitt, James K. & Treich, Nicolas, 2021. "Fatality Risk Regulation," TSE Working Papers 21-1177, Toulouse School of Economics (TSE).
    4. Emmanuel Kemel & Corina Paraschiv, 2018. "Deciding about human lives: an experimental measure of risk attitudes under prospect theory," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 51(1), pages 163-192, June.
    5. Christoph M. Rheinberger & Nicolas Treich, 2017. "Attitudes Toward Catastrophe," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 67(3), pages 609-636, July.
    6. Bernard, C. & De Gennaro Aquino, L. & Vanduffel, S., 2023. "Optimal multivariate financial decision making," European Journal of Operational Research, Elsevier, vol. 307(1), pages 468-483.

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