A Note on Partial Insurance and the Arrow-Pratt Measure of Risk Aversion

W. Chiu ()

The Geneva Papers on Risk and Insurance Theory, 2005, vol. 30, issue 1, 35-40

Abstract: Pratt [1964] establishes that a more risk-averse individual in the Arrow-Pratt sense has a higher compensating risk premium for full insurance, but no comparable result has been established for partial insurance. Ross [1981] shows that a more risk-averse individual in the Arrow-Pratt sense may not be willing to pay more for a reduction in risk in the sense of mean-preserving contraction. We show that a more risk-averse individual in the Arrow-Pratt sense has a higher compensating risk premium for all empirically relevant forms of partial insurance because they induce a reduction in risk in the stronger sense of Bickel and Lemann [1979]. Copyright The Geneva Association 2005

Keywords: partial insurance; Arrow-Pratt measure; risk aversion; Bickel-Lemann (search for similar items in EconPapers)
Date: 2005
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DOI: 10.1007/s10836-005-1106-3

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