The impact of prudence on optimal prevention revisited

Georges DIONNE, Jingyuan LI

Research output: Journal PublicationsJournal Article (refereed)peer-review

26 Citations (Scopus)

Abstract

We re-examine the link between absolute prudence and self-protection activities. We show that the level of effort chosen by an agent with decreasing absolute prudence is larger than the optimal effort chosen by a risk-neutral agent if the degree of absolute prudence is less than a threshold that is utility-independent and empirically verifiable.
Original languageEnglish
Pages (from-to)147-149
Number of pages3
JournalEconomics Letters
Volume113
Issue number2
DOIs
Publication statusPublished - 1 Nov 2011

Bibliographical note

This paper is also available at the Social Science Research Network at http://ssrn.com/abstract=1639539.

Funding

This work was supported by the National Science Foundation of China (General Program) 70602012 and by the Social Science and Humanities Research Council of Canada (SSHRCC). We thank Louis Eeckhoudt, Rachel J. Huang, Pierre Carl Michaud, and a referee for comments on an earlier version.

Keywords

  • Skewness
  • absolute prudence
  • self-protection

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