On the properties of non-monetary measures for risks

Christophe Courbage, Henri Loubergé and Beatrice Rey ()
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Christophe Courbage: Geneva School of Business Administration, University of Applied SciencesWestern Swizterland (HESSO)

No 1710, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: This paper investigates how welfare losses for facing risks change as the risk environment of the decision-maker is altered. 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 concept of stochastic dominance of order n. Three configurations of risk exposures are considered. The paper first shows how the RA-n utility premium is modified when initial wealth becomes riskier. Second, the paper provides conditions on individual preferences for superadditivity of the RA-n utility premium. Third, the paper investigates welfare changes of merging increases in risks. These results offer new interpretations of the sign of higher derivatives of the utility function.

Keywords: risk apportionment; superadditivity; RA-n utility premium (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-upt
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Working Paper: On the properties of non-monetary measures for risks (2017)
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