Risk apportionment via bivariate stochastic dominance

Octave Jokung

Journal of Mathematical Economics, 2011, vol. 47, issue 4-5, 448-452

Abstract: This paper extends to bivariate utility functions, Eeckhoudt et al.’s (2009) result for the combination of ‘bad’ and ‘good’. The decision-maker prefers to get some of the ‘good’ and some of the ‘bad’ to taking a chance on all the ‘good’ or all the ‘bad’ where ‘bad’ is defined via (N,M)-increasing concave order. We generalize the concept of bivariate risk aversion introduced by Richard (1975) to higher orders. Importantly, in the bivariate framework, preference for the lottery [(X̃,T̃);(Ỹ,Z̃)] to the lottery [(X̃,Z̃);(Ỹ,T̃)] when (X̃,Z̃) dominates (Ỹ,T̃) via (N,M)-increasing concave order allows us to assert bivariate risk apportionment of order (N,M) and to extend the concept of risk apportionment defined by Eeckhoudt and Schlesinger (2006).

Keywords: Bivariate utility function; Correlation aversion; Cross-prudence; Cross-temperance; Pair-wise risk aversion; Risk apportionment; Stochastic dominance (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:47:y:2011:i:4:p:448-452

DOI: 10.1016/j.jmateco.2011.06.003

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