Natural disaster risk bearing ability of governments: Consequences of kinked utility

Hochrainer-Stigler S & Pflug GC (2009). Natural disaster risk bearing ability of governments: Consequences of kinked utility. Journal of Natural Disaster Science 31 (1): 11-21.

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Abstract

In this paper the risk neutrality paradigm for government stocks and investments is challenged within the context of catastrophe risk. We focus on government's ability to spread its natural disaster risk. Based on the classical approach of Arrow and Lind, the paper shows the weaknesses of and reformulates the risk neutral assumption for government decisions under uncertainty. The rationale that governments have kinked utility functions, which can arise from natural disaster events, is given through a network example and its implications explained considering also risk aversion and the benefits of different types of risk management strategies.

Item Type: Article
Uncontrolled Keywords: Catastrophe risk, kinked utility, government, risk bearing ability, natural disasters, networks
Research Programs: Risk and Vulnerability (RAV)
Bibliographic Reference: Journal of Natural Disaster Science; 31(1):11-21 (January 2009)
Depositing User: IIASA Import
Date Deposited: 15 Jan 2016 08:41
Last Modified: 24 Feb 2016 14:58
URI: http://pure.iiasa.ac.at/8786

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