Precautionary Effort: Another Trait for Prudence

Jianli Wang and Jingyuan Li

Journal of Risk & Insurance, 2015, vol. 82, issue 4, 977-983

Abstract: type="main" xml:lang="en">

This article shows that, in the temporal model of Eeckhoudt, Huang, and Tzeng ( ), prudence alone is sufficient to obtain a precautionary effort. Moreover, our conclusions relax the assumption of the convexity of loss probability. We further analyze the effect of the introduction or deterioration of background risks on precautionary effort in different settings.

Date: 2015
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