Theoretical Papers: A Note on Indifference Curves in the ($\Mu,\Sigma$)-Space
Posted: 26 Jul 2001
A numerical example employing a class of increasing absolute risk averse utility functions, the incomplete Euler gamma functions, proves that the slope of indifference curves in the $\mu,\sigma$)-space can be locally decreasing in $\sigma$ (for given $\mu$). So far, this possibility has been neglected in literature. We apply the numerical example to insurance problems and to redistributive taxation under risk, and obtain appealing comparative static effects.
Key words: ($\mu, \sigma$), criterion, Increasing absolute risk aversion, Linear distribution classes
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