Catastrophe Aversion and Risk Equity in an Interdependent World

Carole Bernard (), Christoph Rheinberger and Nicolas Treich
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Carole Bernard: Grenoble Ecole de Management, 38000 Grenoble, France; Vrije Universiteit Brussel, 1050 Elsene, Belgium

Management Science, 2018, vol. 64, issue 10, 4490-4504

Abstract: Catastrophe aversion and risk equity are important concepts both in risk management theory and practice. Keeney [Keeney RL (1980) Equity and public risk. Oper. Res. 28(3):527–534] was the first to formally define these concepts. He demonstrated that the two concepts are always in conflict. Yet his result is based on the assumption that individual risks are independent. It has therefore limited relevance for real-world catastrophic events. We extend Keeney’s result to dependent risks and derive the conditions under which more equity and more correlation between two risks imply a more catastrophic situation. We then generalize some of the results for multiple correlated risks.

Keywords: risk equity; catastrophe aversion; correlation; dependence structure; Pigou–Dalton transfer (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (5)

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https://doi.org/10.287/mnsc.2017.2859 (application/pdf)

Related works:
Working Paper: Catastrophe Aversion and Risk Equity in an Interdependent World (2018)
Working Paper: Catastrophe Aversion and Risk Equity in an Interdependent World (2018)
Working Paper: Catastrophe Aversion and Risk Equity in an Interdependent World (2017)
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