A Note on Partial Insurance and the Arrow-Pratt Measure of Risk Aversion
Pratt [1964] establishes that a more risk-averse individual in the Arrow-Pratt sense has a higher compensating risk premium for full insurance, but no comparable result has been established for partial insurance. Ross [1981] shows that a more risk-averse individual in the Arrow-Pratt sense may not be willing to pay more for a reduction in risk in the sense of mean-preserving contraction. We show that a more risk-averse individual in the Arrow-Pratt sense has a higher compensating risk premium for all empirically relevant forms of partial insurance because they induce a reduction in risk in the stronger sense of Bickel and Lemann [1979]. Copyright The Geneva Association 2005
Year of publication: |
2005
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Authors: | Chiu, W. |
Published in: |
The Geneva Papers on Risk and Insurance Theory. - Springer, ISSN 0926-4957. - Vol. 30.2005, 1, p. 35-40
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Publisher: |
Springer |
Subject: | partial insurance | Arrow-Pratt measure | risk aversion | Bickel-Lemann |
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