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On temperance and risks spreading

Author

Listed:
  • Christophe Courbage

    (Geneva School of Business Administration)

  • Béatrice Rey

    (GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - ENS de Lyon - École normale supérieure de Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper shows that temperance is the highest order risk preferences condition for which spreading N independent and unfair risks provides the highest level of welfare than any other possible allocations of risks. These results are also interpreted through the concept of N-superadditivity of the utility premium. This paper provides a novel application of temperance, not in terms of two risks as it is common, but in terms of N risks.

Suggested Citation

  • Christophe Courbage & Béatrice Rey, 2018. "On temperance and risks spreading," Working Papers halshs-01935866, HAL.
    • Handle: RePEc:hal:wpaper:halshs-01935866
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01935866v2
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    File URL: https://shs.hal.science/halshs-01935866v2/document
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    References listed on IDEAS

    as
    1. Ekern, Steinar, 1980. "Increasing Nth degree risk," Economics Letters, Elsevier, vol. 6(4), pages 329-333.
    2. Sebastian Ebert, 2013. "Even (Mixed) Risk Lovers Are Prudent: Comment," American Economic Review, American Economic Association, vol. 103(4), pages 1536-1537, June.
    3. Gollier, Christian, 1996. "Decreasing absolute prudence: Characterization and applications to second-best risk sharing," European Economic Review, Elsevier, vol. 40(9), pages 1799-1815, December.
    4. Gollier, Christian & Pratt, John W, 1996. "Risk Vulnerability and the Tempering Effect of Background Risk," Econometrica, Econometric Society, vol. 64(5), pages 1109-1123, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    temperance; risk spreading; superadditivity;
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