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Preserving the Rothschild–Stiglitz type of increasing risk with background risk

Xu Guo (), Jingyuan Li (), Dongri Liu and Jianli Wang

Insurance: Mathematics and Economics, 2016, vol. 70, issue C, 144-149

Abstract: 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)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:70:y:2016:i:c:p:144-149

DOI: 10.1016/j.insmatheco.2016.06.008

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Insurance: Mathematics and Economics is currently edited by R. Kaas, Hansjoerg Albrecher, M. J. Goovaerts and E. S. W. Shiu

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