On the Shape of Non-Monetary Measures for Risks

Christophe Courbage, Henri Loubergé and Beatrice Rey ()
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Christophe Courbage: University of Applied Sciences of Western Switzerland

No 16-77, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: This paper investigates how welfare losses for facing risks change as a function of the number of risk exposures. To that aim, we define the risk apportionment of order n (RA-n) utility premium as a measure of pain associated with facing the passage from one risk to a riskier one. Changes in risks are expressed through the specific concept of stochastic dominance of order n defined by Ekern (1980). Three confiurations of risk exposures are considered. The paper first shows how the RA-n utility premium is modified when individual's wealth becomes riskier. This makes it possible to generalise earlier results on the topic. Second, the paper provides necessary and sufficient conditions on individual preferences for superadditivity and subadditivity of the RA-n utility premium. Third, the paper investigates welfare changes of merging increases in risks.

Keywords: risk apportionment; superadditivity; RA-n utility premium (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2016-12
New Economics Papers: this item is included in nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1677

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