New results on optimal prevention of risk averse agents

Abstract

This note shows that there exists a threshold level of optimal prevention for a risk neutral agent which separates cases where a risk averse agent exerts less effort in prevention than a risk neutral agent and cases where she exerts more effort. We also show that the risk averse agent makes "more accentuated" choices than the risk neutral agent (i.e. lower prevention when prevention is low and higher prevention when prevention is high). Finally we demonstrate that the threshold level for prevention is affected by agent's prudence or imprudence and that this effect acts in opposite directions in one-period and in two-period frameworks.

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