Insurance demand and the elasticity of risk aversion

Battermann, Harald L.; Бролл, Удо; Wahl, Jack E.

doi:10.1007/s00291-002-0094-2

Cited by 23 publications

(11 citation statements)

References 14 publications

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“…This approach has been widely used in literature including Battermann et al [19], Broll et al [20], Alghalith, et al [21] [22]. In this paper, we extend their work by analyzing the impact of joint energy price and output price uncertainties on the demands for energy and the other non-risky inputs.…”

Section: Introductionmentioning

confidence: 90%

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The Impacts of Joint Energy and Output Prices Uncertainties in a Mean-Variance Framework

Alghalith¹,

Niu²,

Wong³

2017

TEL

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In this paper, we analyze the impacts of joint energy and output prices uncertainties on the inputs demands in a mean-variance framework. We find that the concepts of elasticities and variance vulnerability play important roles in the comparative statics analysis. If the firms' preferences exhibit variance vulnerability, increasing the variance of energy price will necessarily cause the risk averse firm to decrease the demands for the non-risky inputs. Further, we investigate two special cases with only uncertain energy price and only uncertain output price. In the case with only uncertain energy price, we find that the uncertain energy price has no impact on the demands for the non-risky inputs. Besides, if the firms' preferences exhibit variance vulnerability, increasing the variance of energy price will surely cause the risk averse firm to decrease the demand for energy.

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Section: Introductionmentioning

confidence: 90%

“…Wagener [29], and Eichner and Wagener [18] [30] carried out some compara- 1 See, for example, Battermann, Broll and Wahl [19], Broll, Wahl and Wong [20], Wong and Ma [17], and Eichner and Wagener [24].…”

Section: The Modelmentioning

confidence: 99%

The Impacts of Joint Energy and Output Prices Uncertainties in a Mean-Variance Framework

Alghalith¹,

Niu²,

Wong³

2017

TEL

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“…Before analyzing the economic impact of divergence upon the optimal investment ratio, we introduce the concept of risk aversion elasticity (Battermann, Broll and Wahl 2002, Broll, Wahl and Wong 2006, Eichner and Wagener 2003.…”

Section: Locational Effects Of Integrationmentioning

confidence: 99%

Regional Investment Under Uncertain Costs of Location

Бролл¹,

Roldán-Ponce²,

Wahl

2012

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Due to globalization competitive firms face increasing economic opportunities for locating their activities in countries, regions and cities that provide the best business environment for their specific needs. In our study we focus on the impact of economic risk and risk preferences upon regional allocation of investments. The source of risk stems from the difference in stochastic costs of location across regions. A comparative static analysis shows that capital allocation depends upon the firms' risk preferences. As a result regional agglomeration of investments may occur although the objective of the regional policy is aimed at the opposite. Our findings demonstrate the suitability of the two-moment approach as an alternative to the expected utility approach. The impact of changes in distribution parameters, such as the expected costs of location, the variance of costs of location and the correlation between locational costs, can be fully characterized via the elasticity of risk aversion. Elements of risk preferences beyond risk aversion prove to be very important to evaluate regional politics. This insight is of interest for empirical research in regional economics. Terms of use: Documents in JEL-Classification: R12, R30, R38Keywords: Regional allocation, regional economics, regional policy, agglomeration, two-moment decision model 2 Abstract Due to globalization competitive firms face increasing economic opportunities for locating their activities in countries, regions and cities that provide the best business environment for their specific needs. In our study we focus on the impact of economic risk and risk preferences upon regional allocation of investments. The source of risk stems from the difference in stochastic costs of location across regions. A comparative static analysis shows that capital allocation depends upon the firms' risk preferences. As a result regional agglomeration of investments may occur although the objective of the regional policy is aimed at the opposite. Our findings demonstrate the suitability of the two-moment approach as an alternative to the expected utility approach. The impact of changes in distribution parameters, such as the expected costs of location, the variance of costs of location and the correlation between locational costs, can be fully characterized via the elasticity of risk aversion. Elements of risk preferences beyond risk aversion prove to be very important to evaluate regional politics. This insight is o...

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“…Again this condition -which originally was derived in Battermann et al (2002) and Broll et al (2006) -has an EU-analogue, viz. that the index of partial relative risk prudence, R 2 (a, y − a) = −(y − a) u ′′′ (y) u ′′ (y) (again cf.…”

Section: Changes In the Direct Riskmentioning

confidence: 99%