 A general theory of risk apportionmentJournal of Economic Theory, 2021, vol. 192, issue C Abstract: Suppose that the conditional distributions of x˜ (resp. y˜) can be ranked according to the m-th (resp. n-th) risk order. Increasing their statistical concordance increases the (m,n) degree riskiness of (x˜,y˜), i.e., it reduces expected utility for all bivariate utility functions whose sign of the (m,n) cross-derivative is (−1)m+n+1. This means in particular that this increase in concordance of risks induces a m+n degree risk increase in x˜+y˜. On the basis of these general results, I provide different recursive methods to generate high degrees of univariate and bivariate risk increases. In the reverse-or-translate (resp. reverse-or-spread) univariate procedure, a m degree risk increase is either reversed or translated downward (resp. spread) with equal probabilities to generate a m+1 (resp. m+2) degree risk increase. These results are useful for example in asset pricing theory when the trend and the volatility of consumption growth are stochastic or statistically linked. Keywords: Stochastic dominance; Risk orders; Prudence; Temperance; Concordance (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:192:y:2021:i:c:s0022053121000065 DOI: 10.1016/j.jet.2021.105189 Access Statistics for this article Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell More articles in Journal of Economic Theory from Elsevier |
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