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The impact of prudence on optimal prevention

Listed author(s):
  • L. Eeckhoudt

    (LEM - Lille - Economie et Management - Université de Lille, Sciences et Technologies - Fédération Universitaire et Polytechnique de Lille - Université de Lille, Sciences Humaines et Sociales - CNRS - Centre National de la Recherche Scientifique)

  • C. Gollier

What are the determinants of the optimal level of effort to reduce the probability of a loss to occur? Whereas most of the literature on this question focused on risk aversion, we show that the concept of prudence (i.e., a positive third derivative of the utility function) is essential to answer this question. We explain in this paper that prudence and prevention tend to be opponents rather than allies contrary to the intuition attached to everyday language. Copyright Springer-Verlag Berlin/Heidelberg 2005

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Paper provided by HAL in its series Post-Print with number hal-00199781.

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Date of creation: 2005
Publication status: Published in Economic Theory, Springer Verlag, 2005, 26 ((4)), pp.989-994
Handle: RePEc:hal:journl:hal-00199781
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00199781
Contact details of provider: Web page: https://hal.archives-ouvertes.fr/

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