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Burr Utility

Listed author(s):
  • Ikefuji, M.
  • Laeven, R.J.A.

    (Tilburg University, Center For Economic Research)

  • Magnus, J.R.

    (Tilburg University, Center For Economic Research)

  • Muris, C.H.M.

    (Tilburg University, Center For Economic Research)

This note proposes the Burr utility function. Burr utility is a flexible two-parameter family that behaves approximately power-like (CRRA) remote from the origin, while exhibiting exponential-like (CARA) features near the origin. It thus avoids the extreme behavior of the power family near the origin. We show how to characterize Burr utility as a special case in the general class of utility functions with non-increasing and convex absolute risk aversion, and non-decreasing and concave relative risk aversion. We further show its connection to the Burr probability distribution. A related class of generalized exponential utility functions is also studied.

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File URL: https://pure.uvt.nl/portal/files/1251094/2010-81.pdf
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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2010-81.

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Date of creation: 2010
Handle: RePEc:tiu:tiucen:fddee215-edea-4800-ba72-d1848113d888
Contact details of provider: Web page: http://center.uvt.nl

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  1. repec:feb:framed:0074 is not listed on IDEAS
  2. Ikefuji, M. & Laeven, R.J.A. & Magnus, J.R. & Muris, C.H.M., 2010. "Expected Utility and Catastrophic Risk in a Stochastic Economy-Climate Model," Discussion Paper 2010-122, Tilburg University, Center for Economic Research.
  3. Pierre‐André Chiappori & Monica Paiella, 2011. "Relative Risk Aversion Is Constant: Evidence From Panel Data," Journal of the European Economic Association, European Economic Association, vol. 9(6), pages 1021-1052, December.
  4. Peter P. Wakker, 2008. "Explaining the characteristics of the power (CRRA) utility family," Health Economics, John Wiley & Sons, Ltd., vol. 17(12), pages 1329-1344.
  5. Glenn W Harrison & John A List & Charles Towe, 2007. "Naturally Occurring Preferences and Exogenous Laboratory Experiments: A Case Study of Risk Aversion," Econometrica, Econometric Society, vol. 75(2), pages 433-458, 03.
  6. Yaari, Menahem E., 1969. "Some remarks on measures of risk aversion and on their uses," Journal of Economic Theory, Elsevier, vol. 1(3), pages 315-329, October.
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