Journal article
Should we do more when we know less? The effect of technology risk on optimal effort
The Journal of risk and insurance, Vol.88(3), pp.695-725
09/2021
DOI: 10.1111/jori.12339
Abstract
Technology risk arises when the effectiveness of self-insurance and self-protection activities depends on exogenous factors or is only imperfectly known. It affects optimal behavior via a preference channel and a technology channel. In this paper, we identify conditions for unambiguous comparative statics with respect to the presence of, as well as various stochastic changes in technology risk. These conditions involve prudence, relative risk aversion, relative prudence, and several new measures of mitigation efficacy. We highlight cases where technology risk raises the optimal level of effort, consistent with the precautionary principle. We discuss several applications of our results.
Details
- Title: Subtitle
- Should we do more when we know less? The effect of technology risk on optimal effort
- Creators
- Lu Li - Ludwig Maximilians Univ Munchen, Inst Risk Management & Insurance, Munich, GermanyRichard Peter - University of Iowa
- Resource Type
- Journal article
- Publication Details
- The Journal of risk and insurance, Vol.88(3), pp.695-725
- Publisher
- Wiley
- DOI
- 10.1111/jori.12339
- ISSN
- 0022-4367
- eISSN
- 1539-6975
- Number of pages
- 31
- Language
- English
- Date published
- 09/2021
- Academic Unit
- Finance
- Record Identifier
- 9984380436902771
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