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The impact of prudence on optimal prevention

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  • L. Eeckhoudt

    (UMR CNRS 8179 - Université de Lille, Sciences et Technologies - CNRS - Centre National de la Recherche Scientifique)

  • C. Gollier

Abstract

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
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • L. Eeckhoudt & C. Gollier, 2005. "The impact of prudence on optimal prevention," Post-Print hal-00199781, HAL.
    • Handle: RePEc:hal:journl:hal-00199781
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