Willingness to Pay for Risk Reduction and Risk Aversion without the Expected Utility Assumption
By means of minimal assumptions on the individual preferences, I show that the Willingness To Pay (WTP) for both a FSD and SSD reduction of risk is the sum of a mean effect, a pure risk effect and a wealth effect. As a result, the WTP of a risk-averse decision maker may be lower than the WTP of a risk-neutral one, for a large class of individual preferencesâ€™ representation and a large class of risks. Copyright Springer 2005
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- Ross, Stephen A, 1981. "Some Stronger Measures of Risk Aversion in the Small and the Large with Applications," Econometrica, Econometric Society, vol. 49(3), pages 621-38, May.
- Eeckhoudt, L. & Godfroid, Ph. & Gollier, C., 1997. "Willingness to pay, the risk premium and risk aversion," Economics Letters, Elsevier, vol. 55(3), pages 355-360, September.
- Jewitt, Ian, 1987. "Risk Aversion and the Choice between Risky Prospects: The Preservation of Comparative Statics Results," Review of Economic Studies, Wiley Blackwell, vol. 54(1), pages 73-85, January.
- Ian Jewitt, 1989. "Choosing Between Risky Prospects: The Characterization of Comparative Statics Results, and Location Independent Risk," Management Science, INFORMS, vol. 35(1), pages 60-70, January.
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