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Risk apportionment via bivariate stochastic dominance

  • Jokung, Octave
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    This paper extends to bivariate utility functions, Eeckhoudt et al.’s (2009) result for the combination of ‘bad’ and ‘good’. The decision-maker prefers to get some of the ‘good’ and some of the ‘bad’ to taking a chance on all the ‘good’ or all the ‘bad’ where ‘bad’ is defined via (N,M)-increasing concave order. We generalize the concept of bivariate risk aversion introduced by Richard (1975) to higher orders. Importantly, in the bivariate framework, preference for the lottery [(X̃,T̃);(Ỹ,Z̃)] to the lottery [(X̃,Z̃);(Ỹ,T̃)] when (X̃,Z̃) dominates (Ỹ,T̃) via (N,M)-increasing concave order allows us to assert bivariate risk apportionment of order (N,M) and to extend the concept of risk apportionment defined by Eeckhoudt and Schlesinger (2006).

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    File URL: http://www.sciencedirect.com/science/article/pii/S0304406811000577
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    Article provided by Elsevier in its journal Journal of Mathematical Economics.

    Volume (Year): 47 (2011)
    Issue (Month): 4-5 ()
    Pages: 448-452

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    Handle: RePEc:eee:mateco:v:47:y:2011:i:4:p:448-452
    Contact details of provider: Web page: http://www.elsevier.com/locate/jmateco

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    1. X. Henry Wang & Carmen F. Menezes, 2004. "Increasing Outer Risk," Working Papers 0413, Department of Economics, University of Missouri, revised 23 Dec 2004.
    2. repec:knz:cofedp:0305 is not listed on IDEAS
    3. Günter Franke & Harris Schlesinger & Richard C. Stapleton, 2006. "Multiplicative Background Risk," Management Science, INFORMS, vol. 52(1), pages 146-153, January.
    4. EECKHOUDT, Louis & SCHLESINGER, Harris, . "Putting risk in its proper place," CORE Discussion Papers RP -1871, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    5. Eeckhoudt, Louis & Schlesinger, Harris & Tsetlin, Ilia, 2009. "Apportioning of risks via stochastic dominance," Journal of Economic Theory, Elsevier, vol. 144(3), pages 994-1003, May.
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    9. EECKHOUDT, louis & REY, Béatrice & SCHLESINGER, Harris, . "A good sign for multivariate risk taking," CORE Discussion Papers RP -1900, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    10. Larry G. Epstein & Stephen M. Tanny, 1980. "Increasing Generalized Correlation: A Definition and Some Economic Consequences," Canadian Journal of Economics, Canadian Economics Association, vol. 13(1), pages 16-34, February.
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    13. Scarsini, Marco, 1985. "Stochastic dominance with pair-wise risk aversion," Journal of Mathematical Economics, Elsevier, vol. 14(2), pages 187-201, April.
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