Should policy be concerned with objective or subjective risks?
AbstractMuch psychological evidence suggests that people’s risk-perceptions are biased. This paper assumes that public policy should intrinsically be concerned with people’s expected welfare, rather than their preferences, which sometimes implies a degree of paternalism. Still, expected welfare depends on both objective and subjective risks. The latter are important through mental suffering associated with the risk, and through secondbest considerations in decentralized markets where people make their own choices between risky alternatives. Optimality rules for both public provision of risk-reducing investments, and for provision of (costly) information to reduce people’s risk-perception bias, are presented.
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Bibliographic InfoPaper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 93.
Length: 18 pages
Date of creation: 28 Mar 2003
Date of revision:
Contact details of provider:
Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/
More information through EDIRC
Subjective risk; risk management; risk regulation; risk-perception; information provision; cost-benefit analysis; paternalism;
Find related papers by JEL classification:
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-04-02 (All new papers)
- NEP-CDM-2003-04-02 (Collective Decision-Making)
- NEP-LTV-2003-04-02 (Unemployment, Inequality & Poverty)
- NEP-MIC-2003-04-02 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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