Preserving the Rothschild–Stiglitz type of increasing risk with background risk
Xu Guo (),
Jingyuan Li (),
Dongri Liu and
Insurance: Mathematics and Economics, 2016, vol. 70, issue C, 144-149
Background risk refers to a risk that is exogenous and is not subject to transformations by a decision-maker. In this paper, we extend the definition of the Rothschild–Stiglitz type of increasing risk to a background risk framework. We theoretically investigate a more general definition of increase in risk in the presence of background risk. The results suggest that an extended concept of expectation dependence plays a vital role.
Keywords: Increasing risk; Background risk; Expectation dependence; Mean-preserving spread; Comparison of risk (search for similar items in EconPapers)
JEL-codes: C13 C14 D81 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:70:y:2016:i:c:p:144-149
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