Inverse stochastic dominance constraints and rank dependent expected utility theory
AbstractWe consider optimization problems with second order stochastic dominance constraints formulated as a relation of Lorenz curves. We characterize the relation in terms of rank dependent utility functions, which generalize Yaari's utility functions. We develop optimality conditions and duality theory for problems with Lorenz dominance constraints. We prove that Lagrange multipliers associated with these constraints can be identified with rank dependent utility functions. The problem is numerically tractable in the case of discrete distributions with equally probable realizations.
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Bibliographic InfoPaper provided by EconWPA in its series GE, Growth, Math methods with number 0503001.
Length: 17 pages
Date of creation: 11 Mar 2005
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Stochastic Dominance; Lorenz Curve; Yaari's Dual Utility; Rank Dependent Expected Utility; Optimality; Duality;
Find related papers by JEL classification:
- C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
- D5 - Microeconomics - - General Equilibrium and Disequilibrium
- D9 - Microeconomics - - Intertemporal Choice
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-04-16 (All new papers)
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