absolute prudence, self-protection, Skewness
We re-examine the link between absolute prudence and self-protection activities. We show that the level of effort chosen by an agent with decreasing absolute prudence is larger than the optimal effort chosen by a risk-neutral agent if the degree of absolute prudence is less than a threshold that is utility-independent and empirically verifiable.
Copyright © 2011 Elsevier B.V.
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This paper is also available at the Social Science Research Network at http://ssrn.com/abstract=1639539.
Accepted Author Manuscript
Dionne, G., & Li, J. (2011). The impact of prudence on optimal prevention revisited. Economics Letters, 113(2), 147-149. doi: 10.1016/j.econlet.2011.06.019