On the properties of high-order non-monetary measures for risks

Christophe Courbage (), Henri Loubergé and Béatrice Rey ()
Additional contact information
Christophe Courbage: University of Applied Sciences Western Swizterland (HES-SO)
Béatrice Rey: GATE UMR 5824, Univ Lyon, Université Lumière Lyon 2

The Geneva Risk and Insurance Review, 2018, vol. 43, issue 1, No 5, 77-94

Abstract: Abstract This paper investigates how welfare losses for facing high-order risk increases change when the risk environment of the decision maker is altered. To that aim, we define the nth-order utility premium as a measure of pain associated with facing the passage of one risk to a more severe one and we examine some of its properties. Changes in risk are expressed through the concept of stochastic dominance of order n. The paper investigates more particularly welfare changes of merging increases in risk, first ignoring background risks, then taking them into account. Merging increases in risk may be beneficial or not, depending on whether background risks are considered and how. The paper also provides conditions on individual preferences for superadditivity of the nth-order utility premium. The results confirm the importance and usefulness of two analytical concepts: mixed risk aversion and risk apportionment.

Keywords: Mixed risk aversion; Risk apportionment; Merging increases in risk; Superadditivity; nth-order utility premium (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (8)

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Journal Article: On the properties of high-order non-monetary measures for risks (2018)
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DOI: 10.1057/s10713-018-0029-8

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