Precautionary Effort: Another Trait for Prudence
Posted: 5 Jun 2014
Date Written: June 3, 2014
Abstract
This paper shows that, in the temporal model of Eeckhoudt et al. (2012), prudence alone is sufficient to obtain a precautionary effort. Moreover, our conclusions relax the assumption of the convexity of loss probability. We further analyze the effect of the introduction or deterioration of background risks on precautionary effort in different settings.
Keywords: Prudence; Precautionary effort; Background risks
JEL Classification: D81
Suggested Citation: Suggested Citation
Wang, Jianli and Li, Jingyuan, Precautionary Effort: Another Trait for Prudence (June 3, 2014). Available at SSRN: https://ssrn.com/abstract=2445785 or http://dx.doi.org/10.2139/ssrn.2445785
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