A note on partial insurance and the arrow-pratt measure of risk aversion

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Abstract

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]. © 2005 The Geneva Association.

Bibliographical metadata

Original languageEnglish
Pages (from-to)35-40
Number of pages5
JournalGENEVA Risk and Insurance Review
Volume30
Issue number1
DOIs
Publication statusPublished - Jun 2005