We consider the effects of changes in the distribution of a background risk on the optimal risk taking behaviour of a risk- averse decision maker. In particular, we suppose that the background risk deteriorates via a first- or second-degree stochastic dominance shift. Our contention is that such...

In this paper, we examine second-best efficient allocations of risk when some forms of incompleteness are introduced in risk- sharing contracts. In the first model, there are two independent sources of risk, but risk-sharing contracts can be made contingent to only one of the two sources. We...

We examine in this paper a new natural restriction on utility functions, namely that an undesirable risk can never be made desirable by the presence of an independent, unfair risk. This concept is called weak properness. It generalizes the concept of properness (individually undesirable,...