TY - JOUR
T1 - Precautionary paying for stochastic improvements under background risks
AU - WANG, Hongxia
AU - WANG, Jianli
AU - LI, Jingyuan
AU - XIA, Xinping
PY - 2015/9
Y1 - 2015/9
N2 - In a two-dimensional framework, we propose a general two-period decision model which extends the temporal precautionary saving and effort model. We relate the role of cross-prudence to the impact of background risks on paying for stochastic improvements of the future risk. We find that the effect of background risks introduced in the first period is consistent to signing cross derivatives of bivariate utility functions, which is independent of the type of stochastic improvements brought by additional paying; however, when the background risk occurs in the second period, that is not the case.
AB - In a two-dimensional framework, we propose a general two-period decision model which extends the temporal precautionary saving and effort model. We relate the role of cross-prudence to the impact of background risks on paying for stochastic improvements of the future risk. We find that the effect of background risks introduced in the first period is consistent to signing cross derivatives of bivariate utility functions, which is independent of the type of stochastic improvements brought by additional paying; however, when the background risk occurs in the second period, that is not the case.
KW - Background risk
KW - Cross-prudence
KW - Precautionary effort
KW - Precautionary saving
KW - Stochastic improvements
UR - http://commons.ln.edu.hk/sw_master/2721
UR - http://www.scopus.com/inward/record.url?scp=84930943755&partnerID=8YFLogxK
U2 - 10.1016/j.insmatheco.2015.05.012
DO - 10.1016/j.insmatheco.2015.05.012
M3 - Journal Article (refereed)
SN - 0167-6687
VL - 64
SP - 180
EP - 185
JO - Insurance : Mathematics and Economics
JF - Insurance : Mathematics and Economics
ER -