TY - JOUR
T1 - Risks with semi-infinite support
T2 - Characterizations and applications
AU - Kim, Sung Hyun
N1 - Publisher Copyright:
© 2016, Korean Econometric Society. All rights reserved.
PY - 2016/12
Y1 - 2016/12
N2 - There are many situations that we need to model as risky prospects whose values are censored below at 0, hence defined on semi-infinite support. As useful tools for such models, we derive analytic characterizations of risks such as certainty equivalent and risk premium, for gamma and lognormal distributions and utility functions that have constant risk aversion. As a main application, we consider an extension of the ‘linear contract, exponential utility, normally distributed risks’ (LEN) moral hazard model to gamma distributed risks. We also discuss other potential applications, ranging from loan contracts to comparison of income distributions.
AB - There are many situations that we need to model as risky prospects whose values are censored below at 0, hence defined on semi-infinite support. As useful tools for such models, we derive analytic characterizations of risks such as certainty equivalent and risk premium, for gamma and lognormal distributions and utility functions that have constant risk aversion. As a main application, we consider an extension of the ‘linear contract, exponential utility, normally distributed risks’ (LEN) moral hazard model to gamma distributed risks. We also discuss other potential applications, ranging from loan contracts to comparison of income distributions.
KW - CARA
KW - Certainty equivalent
KW - CRRA
KW - Gamma and lognormal distributions
KW - Moral hazard
UR - http://www.scopus.com/inward/record.url?scp=85008467368&partnerID=8YFLogxK
M3 - Article
AN - SCOPUS:85008467368
SN - 1229-2893
VL - 27
SP - 1
EP - 24
JO - Journal of Economic Theory and Econometrics
JF - Journal of Economic Theory and Econometrics
IS - 4
ER -