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How do changes in risk and risk aversion affect self-protection with Selden/Kreps–Porteus preferences?

Jianli Wang, Hongxia Wang and Ho Yin Yick

Insurance: Mathematics and Economics, 2019, vol. 88, issue C, 1-6

Abstract: This paper examines the determinants of optimal effort in an intertemporal self-protection model. We separate attitude toward risk and attitude toward intertemporal substitution by adopting Selden/Kreps–Porteus preferences. We not only explore the sufficient conditions on risk preferences for guaranteeing the unambiguous effects of changes in risk on the optimal effort level but also show how a change in risk aversion alone affects the optimal effort level.

Keywords: Self-protection; Intertemporal substitution; Risk aversion; Stochastic dominance; Expected-utility (search for similar items in EconPapers)
JEL-codes: D81 D91 G11 D61 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.insmatheco.2019.05.004

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