TY - JOUR
T1 - Comparative statics of changes in risk on monotonically and partially responsive kinked payoffs
AU - HAU, Arthur
PY - 2010/2/16
Y1 - 2010/2/16
N2 - This paper derives two sets of necessary and sufficient conditions on the comparative statics of changes in risk under kinked payoff functions that are monotonically responsive and partially responsive to the realization of risk, respectively. The former case includes the newsboy problem with backorder; the latter case includes the newsboy problem without backorder and under some restrictions, also includes the optimal deductible insurance problem. Some relatively non-restrictive conditions derived from the necessary and sufficient conditions reveal that the three problems can be quite different, even though they are often viewed in the literature as being congruous. These conditions lead to simple predictions of the direction of change in any risk-averse agent's optimal choice upon a change in risk, without assuming specific functional forms for the utility function.
AB - This paper derives two sets of necessary and sufficient conditions on the comparative statics of changes in risk under kinked payoff functions that are monotonically responsive and partially responsive to the realization of risk, respectively. The former case includes the newsboy problem with backorder; the latter case includes the newsboy problem without backorder and under some restrictions, also includes the optimal deductible insurance problem. Some relatively non-restrictive conditions derived from the necessary and sufficient conditions reveal that the three problems can be quite different, even though they are often viewed in the literature as being congruous. These conditions lead to simple predictions of the direction of change in any risk-averse agent's optimal choice upon a change in risk, without assuming specific functional forms for the utility function.
KW - Comparative statics of changes in risk
KW - Deductible insurance
KW - Kinked payoff functions
KW - Newsboy problem
KW - Partially responsive payoff
UR - http://commons.ln.edu.hk/sw_master/6552
UR - https://www.scopus.com/inward/record.uri?eid=2-s2.0-70249098481&doi=10.1016%2fj.ejor.2009.02.032&partnerID=40&md5=67871223d6fe621745a87c790caa3019
U2 - 10.1016/j.ejor.2009.02.032
DO - 10.1016/j.ejor.2009.02.032
M3 - Journal Article (refereed)
SN - 0377-2217
VL - 201
SP - 267
EP - 276
JO - European Journal of Operational Research
JF - European Journal of Operational Research
IS - 1
ER -