Optimal Prevention for Correlated Risks
| Title: | Optimal Prevention for Correlated Risks |
|---|---|
| Authors: | Christophe Courbage; Richard Peter; Jel-classification D D |
| Contributors: | The Pennsylvania State University CiteSeerX Archives |
| Source: | http://www.aria.org/Annual_Meeting/2014/2014_Accepted_Papers/3C/OptPrevCorrRisks_Jun2014.pdf. |
| Publication Year: | 2014 |
| Collection: | CiteSeerX |
| Subject Terms: | prevention · correlation · multiple risks |
| Description: | This paper analyzes optimal prevention expenditures in a situation of multiple correlated risks. We focus on probability reduction (self-protection). This renders correlation endoge-nous so that we measure dependence as the relative deviation of the probability of joint losses from the uncorrelated case. If prevention concerns only one risk, introducing a negatively correlated exogenous risk increases the level of prevention expenditures. If prevention expen-ditures may be invested for both risks, a substitution effect arises due to the competition for resources. Under decreasing returns on self-protection we find that increased dependence in-creases overall prevention expenditures, but not necessarily prevention expenditures for each risk due to differences in prevention efficiency. Similar results are found when considering the impact of more severe losses. We derive policy implications from our results. |
| Document Type: | text |
| File Description: | application/pdf |
| Language: | English |
| Relation: | http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.686.2072; http://www.aria.org/Annual_Meeting/2014/2014_Accepted_Papers/3C/OptPrevCorrRisks_Jun2014.pdf |
| Availability: | http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.686.2072; http://www.aria.org/Annual_Meeting/2014/2014_Accepted_Papers/3C/OptPrevCorrRisks_Jun2014.pdf |
| Rights: | Metadata may be used without restrictions as long as the oai identifier remains attached to it. |
| Accession Number: | edsbas.87DB737B |
| Database: | BASE |