Beneficial Changes in Random Variables Via Copulas: An Application to Insurance
GENEVA PAPERS ON RISK AND INSURANCE THEORY, Vol. 20 No 2, December 1995
Posted: 13 Jul 1998
A risk-averse agent does not necessarily decrease the optimal insurance coverage whenever a beneficial change in the distribution of final wealth occurs. This note provides sufficient conditions to guarantee such a decrease. Beneficial changes can be induced by either a beneficial loss-distribution shift, by a modification of the dependence structure between the randomness sources, or by both of these. Conditions for each case are stated. Hadar-Seo and Meyer results turn out as special cases.
JEL Classification: G22
Suggested Citation: Suggested Citation