Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/107845
Authors: 
Ikefuji, Masako
Laeven, Roger
Magnus, Jan
Muris, Chris
Year of Publication: 
2014
Series/Report no.: 
Tinbergen Institute Discussion Paper 14-133/III
Abstract: 
An expected utility based cost-benefit analysis is in general fragile to its distributional assumptions. We derive necessary and sufficient conditions on the utility function of the expected utility model to avoid this. The conditions ensure that expected (marginal) utility remains finite also under heavy-tailed distributional assumptions. Our results are context-free and are relevant to many fields encountering catastrophic risk analysis, such as, perhaps most noticeably, insurance and risk management.
Subjects: 
Expected utility
Catastrophe
Cost-benefit analysis
Risk management
Power utility
Exponential utility
Heavy tails
JEL: 
D61
D81
G10
G20
Q05
Document Type: 
Working Paper

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