On the properties of high-order non-monetary measures for risks

Courbage, Christophe (Haute école de gestion de Genève, HES-SO // Haute Ecole Spécialisée de Suisse Occidentale) ; Loubergé, Henri (University of Geneva, Switzerland) ; Rey, Béatrice (Université Lumière Lyon 2, Ecully France)

This paper investigates how welfare losses for facing high-order risk increases change when the risk environment of the decision maker is altered. To that aim, we define the nth-order utility premium as a measure of pain associated with facing the passage of one risk to a more severe one and we examine some of its properties. Changes in risk are expressed through the concept of stochastic dominance of order n. The paper investigates more particularly welfare changes of merging increases in risk, first ignoring background risks, then taking them into account. Merging increases in risk may be beneficial or not, depending on whether background risks are considered and how. The paper also provides conditions on individual preferences for superadditivity of the nth-order utility premium. The results confirm the importance and usefulness of two analytical concepts: mixed risk aversion and risk apportionment.


Keywords:
Article Type:
scientifique
Faculty:
Economie et Services
School:
HEG - Genève
Institute:
CRAG - Centre de Recherche Appliquée en Gestion
Subject(s):
Economie/gestion
Date:
2018
Pagination:
18 p.
Published in:
Geneva risk and insurance review
Numeration (vol. no.):
2018, vol. 43, no. 1, pp. 77–94
DOI:
ISSN:
1554-964X
Appears in Collection:



 Record created 2018-05-28, last modified 2019-11-28

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