Self-Protection, Information and the Precautionary Principle

In this paper we examine the effect of information on investment in self-protection. We show that the relationship between more information and investment in self-protection is ambiguous in general. If absolute risk aversion is constant, then investment in self-protection always decreases with a better information structure. We show that if we interpret the Precautionary Principle as requiring more self-protection today, it is difficult to accept it on the grounds of efficiency, except for a particular subset of information structures. The Geneva Papers on Risk and Insurance Theory (2000) 25, 179–187. doi:10.1023/A:1008770530165