Incremental Risk Vulnerability
نویسندگان
چکیده
This paper analyses conditions for an increase in an additive independent background risk to increase an agent’s risk aversion (incremental risk vulnerability). We, first, present a necessary and sufficient condition on an agent’s utility function for a simple mean preserving spread in background risk to increase the agent’s risk aversion. Gollier and Pratt (1996) have shown that declining and convex risk aversion as well as standard risk aversion are sufficient for risk vulnerability. We show that these conditions are also sufficient for incremental risk vulnerability, given a mean preserving spread. Second, we present sufficient conditions for a restricted set of stochastic increases in an independent background risk to increase risk aversion. These conditions are differentiated with respect to the type of stochastic increase. Journal of Economic Literature Classification Numbers: D 52, D 81 Incremental Risk Vulnerability 2
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