Catastrophe Aversion and Risk Equity in an Interdependent World

Nicolas Treich, Carole Bernard and Christoph Rheinberger
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Carole Bernard: EESC-GEM Grenoble Ecole de Management, VUB - Vrije Universiteit Brussel [Bruxelles]

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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 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (6)

Published in Management Science, 2018, 64 (10), pp.v, 4471-4965. ⟨10.1287/mnsc.2017.2859⟩

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Journal Article: 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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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01948614

DOI: 10.1287/mnsc.2017.2859

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