Which Shape for the Cost Curve of Risk?
It is often suggested that the larger the size of risk, the larger our willingness to pay (WTP) for a given reduction of this risk. We show that this is not true in general in the expected utility model. We examine under which conditions the WTP for a marginal reduction in the size of risk is increasing. We also examine the closely related question of whether the risk premium is superadditive in the size of risk.
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|Date of creation:||1998|
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