On the Shape of Non-Monetary Measures for Risks

17 Pages Posted: 20 Dec 2016 Last revised: 4 Jan 2017

See all articles by Christophe Courbage

Christophe Courbage

Haute Ecole de Gestion de Genève - University of Applied Sciences Western Switzerland (HES-SO)

Henri Loubergé

University of Geneva - Geneva School of Economics and Management; Swiss Finance Institute

Béatrice Rey

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE)

Date Written: December 20, 2016

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

JEL Classification: D81

Suggested Citation

Courbage, Christophe and Loubergé, Henri and Rey, Béatrice, On the Shape of Non-Monetary Measures for Risks (December 20, 2016). Swiss Finance Institute Research Paper No. 16-77, Available at SSRN: https://ssrn.com/abstract=2888025

Christophe Courbage

Haute Ecole de Gestion de Genève - University of Applied Sciences Western Switzerland (HES-SO) ( email )

Geneva
Switzerland

Henri Loubergé (Contact Author)

University of Geneva - Geneva School of Economics and Management ( email )

Uni Mail
Bd du Pont-d'Arve 40
Geneva, 1211
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Béatrice Rey

University of Lyon 2 - Groupe d'Analyse et de Théorie Economique (GATE) ( email )

93, chemin des Mouilles
Ecully, 69130
France

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