Diffidence Theorem, State-Dependent Preferences, and DARA&ast

Georges Dionne () and Marie-Gloriose Ingabire
Additional contact information
Marie-Gloriose Ingabire: Health Canada

The Geneva Risk and Insurance Review, 2001, vol. 26, issue 2, 139-154

Abstract: C. Gollier (The Economics of Risk and Time. Cambridge: MIT Press, 2001) has developed a standard technique based on the diffidence theorem. This theorem provides a very simple instrument to solve relatively sophisticated problems when preferences are state-independent. The object of this article is to show that the theorem is also very useful to derive significant results with state-dependent preferences. Using the reference set notion and an extension of the diffidence theorem, we establish formally necessary and sufficient conditions on the reference set, in order to obtain prudence and decreasing absolute risk aversion. Examples of DARA utility functions compatible with non-linear reference sets are presented in the Appendix. The Geneva Papers on Risk and Insurance Theory (2001) 26, 139–154. doi:10.1023/A:1014334614157

Date: 2001
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.palgrave-journals.com/grir/journal/v26/n2/pdf/grir2001136a.pdf Link to full text PDF (application/pdf)
http://www.palgrave-journals.com/grir/journal/v26/n2/full/grir2001136a.html Link to full text HTML (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:genrir:v:26:y:2001:i:2:p:139-154

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10713

Access Statistics for this article

The Geneva Risk and Insurance Review is currently edited by Michael Hoy and Nicolas Treich

More articles in The Geneva Risk and Insurance Review from Palgrave Macmillan, International Association for the Study of Insurance Economics (The Geneva Association) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().