Comparative statics of changes in risk on monotonically and partially responsive kinked payoffs
Document Type
Journal article
Source Publication
European Journal of Operational Research
Publication Date
1-1-2010
Volume
201
Issue
1
First Page
267
Last Page
276
Keywords
Comparative statics of changes in risk, Deductible insurance, Kinked payoff functions, Newsboy problem, Partially responsive payoff
Abstract
This paper derives two sets of necessary and sufficient conditions on the comparative statics of changes in risk under kinked payoff functions that are monotonically responsive and partially responsive to the realization of risk, respectively. The former case includes the newsboy problem with backorder; the latter case includes the newsboy problem without backorder and under some restrictions, also includes the optimal deductible insurance problem. Some relatively non-restrictive conditions derived from the necessary and sufficient conditions reveal that the three problems can be quite different, even though they are often viewed in the literature as being congruous. These conditions lead to simple predictions of the direction of change in any risk-averse agent's optimal choice upon a change in risk, without assuming specific functional forms for the utility function.
DOI
10.1016/j.ejor.2009.02.032
Print ISSN
03772217
Publisher Statement
Copyright © 2009 Elsevier B.V. All rights reserved. Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Hau, A. (2011). Comparative statics of changes in risk on monotonically and partially responsive kinked payoffs. European Journal of Operational Research, 201(1), 267-276. doi:10.1016/j.ejor.2009.02.032