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Should More Risk-Averse Agents Exert More Effort?

Should More Risk-Averse Agents Exert More Effort? Consider an agent facing a risky distribution of losses who can change this distribution by exerting some effort. Should he exert more effort when he becomes more risk-averse? For instance, should we expect more risk-averse drivers to drive more cautiously? In this article, we give sufficient conditions under which the answer is positive, using results presented in Jewitt (1989). We first extend the standard models of self-insurance and self-protection and show that the comparative statics depends only on the effect of effort on the net loss. We then present conditions for the continuous case with applications. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Geneva Papers on Risk and Insurance Theory Springer Journals

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References (12)

Publisher
Springer Journals
Copyright
Copyright © 1999 by The Geneva Association
Subject
Finance; Financial Services; Finance, general; Insurance; Risk Management
ISSN
0926-4957
eISSN
1573-6954
DOI
10.1023/A:1008729115022
Publisher site
See Article on Publisher Site

Abstract

Consider an agent facing a risky distribution of losses who can change this distribution by exerting some effort. Should he exert more effort when he becomes more risk-averse? For instance, should we expect more risk-averse drivers to drive more cautiously? In this article, we give sufficient conditions under which the answer is positive, using results presented in Jewitt (1989). We first extend the standard models of self-insurance and self-protection and show that the comparative statics depends only on the effect of effort on the net loss. We then present conditions for the continuous case with applications.

Journal

The Geneva Papers on Risk and Insurance TheorySpringer Journals

Published: Jun 1, 1999

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