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On the Shape of Non-Monetary Measures for Risks

Author

Listed:
  • Christophe Courbage

    (University of Applied Sciences of Western Switzerland)

  • Henri Loubergé

    (University of Geneva and Swiss Finance Institute)

  • Béatrice Rey

    (University of Lyon 2)

Abstract

This paper investigates how welfare losses for facing risks change as a function of the number of risk exposures. To that aim, we define the risk apportionment of order n (RA-n) utility premium as a measure of pain associated with facing the passage from one risk to a riskier one. Changes in risks are expressed through the specific concept of stochastic dominance of order n defined by Ekern (1980). Three confiurations of risk exposures are considered. The paper first shows how the RA-n utility premium is modified when individual's wealth becomes riskier. This makes it possible to generalise earlier results on the topic. Second, the paper provides necessary and sufficient conditions on individual preferences for superadditivity and subadditivity of the RA-n utility premium. Third, the paper investigates welfare changes of merging increases in risks.

Suggested Citation

  • Christophe Courbage & Henri Loubergé & Béatrice Rey, 2016. "On the Shape of Non-Monetary Measures for Risks," Swiss Finance Institute Research Paper Series 16-77, Swiss Finance Institute.
  • Handle: RePEc:chf:rpseri:rp1677
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    More about this item

    Keywords

    risk apportionment; superadditivity; RA-n utility premium;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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