Intensity of Preferences for Bivariate Risk Apportionment

17 Pages Posted: 20 Apr 2020 Last revised: 2 Dec 2020

See all articles by David Crainich

David Crainich

Catholic University of Lille - Faculté Libre des Sciences Economiques (FLSE)

Louis Eeckhoudt

Catholic University of Lille - IESEG School of Management

Olivier Le Courtois

EM Lyon (Ecole de Management de Lyon) - Department of Economics, Finance, Control

Date Written: March 26, 2020

Abstract

Bivariate risk apportionment is the preference for dispersing risks associated with two aspects of individuals' well being into different states of the world. In this paper, we propose an intensity measure of this preference by extending to the bivariate case the concept of marginal rate of substitution between risks of different orders introduced in the univariate case by Liu and Meyer (2013). We show that the intensity measure of the preference for bivariate risk apportionment is characterized by bivariate risk attitudes in the sense of Ross. The usefulness of our measures to understand economic choices is illustrated by the analysis of two specific decisions: savings under environmental risk and medical treatment in the presence of diagnostic risks.

Keywords: Bivariate utility function, Increase in bivariate risks, Risk apportionment, Comparative risk aversion, Ross risk aversion

Suggested Citation

Crainich, David and Eeckhoudt, Louis and Le Courtois, Olivier Arnaud, Intensity of Preferences for Bivariate Risk Apportionment (March 26, 2020). Journal of Mathematical Economics Vol. 88, p. 153–160, 2020, Available at SSRN: https://ssrn.com/abstract=3561907

David Crainich

Catholic University of Lille - Faculté Libre des Sciences Economiques (FLSE) ( email )

60 Boulevard Vauban
Lille Cedex, 59030
France

Louis Eeckhoudt

Catholic University of Lille - IESEG School of Management ( email )

3 Rue de la Digue
Office: A321
Puteaux, 92800
France

Olivier Arnaud Le Courtois (Contact Author)

EM Lyon (Ecole de Management de Lyon) - Department of Economics, Finance, Control ( email )

23, av. Guy de Collongue
69134 Ecully Cedex
France

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