A More General Measure of Risk Aversion When Utility Is State-Dependent.

In this paper, the authors propose a method for comparing risk aversion within the state-dependent utility model. This model is useful for analyzing economic problems relating to health or life. The authors extend the Arrow-Pratt measure of risk aversion to the case where utility is state-dependent. Their measure is a generalization of earlier methods of comparing risk aversion in this context, since it agrees with them where they are defined, but can be applied to a much larger class of utility functions. The authors show how their analysis can be applied to a simple model of demand for insurance. Copyright 1991 by Royal Economic Society.