The Impact of Prudence on Optimal Prevention Revisited
AbstractThis paper re-examines the link between absolute prudence and self-protection activities. We show that the level of effort chosen by a prudent agent is larger than the optimal effort chosen by a risk-neutral agent if and only if the degree of absolute prudence is less than a threshold that is utility-independent. We explain this threshold by a trade-off between the variation of the variance and the level of the third moment of the loss distribution. We also discuss our result in terms of skewness. Our contribution extends the model of Eeckhoudt and Gollier (2005).
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by CIRPEE in its series Cahiers de recherche with number 1024.
Date of creation: 2010
Date of revision:
Absolute prudence; Moments of the loss distribution; Self-protection; Variance; Skewness;
Other versions of this item:
- Dionne, Georges & Li, Jingyuan, 2011. "The impact of prudence on optimal prevention revisited," Economics Letters, Elsevier, vol. 113(2), pages 147-149.
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- 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-2010-07-24 (All new papers)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Menegatti, Mario & Rebessi, Filippo, 2011.
"On the substitution between saving and prevention,"
Mathematical Social Sciences,
Elsevier, vol. 62(3), pages 176-182.
- Gollier, Christian & Hammitt, James & Treich, Nicolas, 2013.
"Risk and Choice: A Research Saga,"
TSE Working Papers
13-444, Toulouse School of Economics (TSE).
- Xue, Minggao & Cheng, Wen, 2013. "Background risk, bivariate risk attitudes, and optimal prevention," Mathematical Social Sciences, Elsevier, vol. 66(3), pages 390-395.
- Jindapon, Paan, 2013. "Do risk lovers invest in self-protection?," Economics Letters, Elsevier, vol. 121(2), pages 290-293.
- Georges Dionne & Martin Lebeau, 2010.
"Le calcul de la valeur statistique d'une vie humaine,"
Cahiers de recherche
- Dionne, Georges & Lebeau, Martin, 2010. "Le calcul de la valeur statistique d’une vie humaine," L'Actualité Economique, Société Canadienne de Science Economique, vol. 86(4), pages 487-530, dÃ©cembre.
- Dionne, Georges & Lebeau, Martin, 2010.
"Le calcul de la valeur statistique d'une vie humaine
[Estimation of statistical value of life]," MPRA Paper 37573, University Library of Munich, Germany.
- Courbage, Christophe & Rey, Béatrice & Treich, Nicolas, 2013.
"Prevention and precaution,"
TSE Working Papers
13-445, Toulouse School of Economics (TSE).
- Kylymnyuk, Dmytro & Wagner, Alexander K., 2012. "Commitment through risk," Economics Letters, Elsevier, vol. 116(3), pages 295-297.
- Mario Menegatti, 2012. "New results on optimal prevention of risk averse agents," Economics Bulletin, AccessEcon, vol. 32(3), pages 2166-2173.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Johanne Perron).
If references are entirely missing, you can add them using this form.