Journal article
Disentangling risk and time for optimal prevention
Economic theory
05/27/2026
DOI: 10.1007/s00199-026-01722-3
Appears in UI Libraries Support Open Access
Abstract
We study the effect of prudence on optimal prevention in two periods with Kreps and Porteus (1978) and Selden (1978) (KPS) preferences. We use consumption smoothing as the benchmark and consider risk-averse decision-makers. In this framework, prudence has a positive effect on prevention, generalizing findings of Menegatti (2009). We extend this result to risk lovers and comparative risk aversion. When saving is endogenized, the preference over the timing of uncertainty resolution becomes irrelevant for prevention, and only the curvature of marginal utility matters. This result allows us to identify a class of decision-makers who are prudent in the KPS model but whose prevention effort coincides with that of a risk-neutral agent. Our findings highlight that the structure of intertemporal preferences critically shapes the link between prudence and prevention.
Details
- Title: Subtitle
- Disentangling risk and time for optimal prevention
- Creators
- Yichun Chi - Central University of Finance and EconomicsRichard Peter - University of IowaMengjia Qi - Central University of Finance and Economics
- Resource Type
- Journal article
- Publication Details
- Economic theory
- DOI
- 10.1007/s00199-026-01722-3
- ISSN
- 0938-2259
- eISSN
- 1432-0479
- Publisher
- Springer Nature
- Number of pages
- 38
- Grant note
- 22JJD790090 / MOE (China) Project of Key Research Institute of Humanities and Social Sciences at Universities 12371479 / National Natural Science Foundation of China; National Natural Science Foundation of China (NSFC)
- Language
- English
- Electronic publication date
- 05/27/2026
- Academic Unit
- Economics; Finance
- Record Identifier
- 9985174809602771
Metrics
2 Record Views