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Precautionary Effort: Another Trait for Prudence

Posted: 5 Jun 2014

See all articles by Jianli Wang

Jianli Wang

Nanjing University of Aeronautics and Astronautics - College of Economics and Management

Jingyuan Li

Lingnan University - Department of Finance and Insurance

Date Written: June 3, 2014

Abstract

This paper shows that, in the temporal model of Eeckhoudt et al. (2012), prudence alone is sufficient to obtain a precautionary effort. Moreover, our conclusions relax the assumption of the convexity of loss probability. We further analyze the effect of the introduction or deterioration of background risks on precautionary effort in different settings.

Keywords: Prudence; Precautionary effort; Background risks

JEL Classification: D81

Suggested Citation

Wang, Jianli and Li, Jingyuan, Precautionary Effort: Another Trait for Prudence (June 3, 2014). Available at SSRN: https://ssrn.com/abstract=2445785 or http://dx.doi.org/10.2139/ssrn.2445785

Jianli Wang

Nanjing University of Aeronautics and Astronautics - College of Economics and Management ( email )

Nanjing
China

Jingyuan Li (Contact Author)

Lingnan University - Department of Finance and Insurance ( email )

Castle Peak Road
Tuen Mun, New Territories
Hong Kong
China

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