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We organize and extend findings on the comparative static effects of risk changes on optimal behavior in a unifying expected utility model. We determine restrictions on preferences for clear-cut results. Risk increases of a benefit are compensated by lowering exposure to risk. For risk increases of a cost, the response depends on the order of the risk change. This discrepancy arises because even-order risk increases of a cost raise the riskiness of the payoff distribution, whereas odd-order risk increases of a cost reduce it. We identify the stochastic dominance orders to resolve this discrepancy and discuss specific decision problems as applications. This paper was accepted by Manel Baucells, behavioral economics and decision analysis.

This work examines the effects of different kinds of subsidies on risk prevention from a theoretical standpoint. We show that both a subsidy on the cost of prevention activities and a subsidy on wealth have ambiguous effects on the level of present contemporaneous prevention. Similar kinds of subsidies have however increasing effects on the level of advance prevention and, under plausible assumptions, on future levels of contemporaneous prevention. We also show that social security subsidies may have decreasing effects on prevention activities while a kind of reverse social security has an increasing effects on them. This indicates that there is a trade-off between the social security aim of mitigating the negative consequences of bad events and the prevention aim of incentivizing choices which reduce the probability that these bad events occur.

This work analyzes a two-period rent-seeking game, with the aim of studying the effect of risk aversion on the optimal choices made by the rent-seekers. We first prove that the equilibrium in two-period rent-seeking games always is unique. The analysis also shows that more risk aversion reduces the investment in the rent-seeking game in a two-period framework without introducing the additional condition of prudence, required in one-period models. Similarly, the introduction of a risky rent, instead of a given rent, implies, in the two-period framework, a reduction in investment under the condition that the rent-seekers are risk averse. Moreover, with risk aversion, larger first-period wealth increases investment in the rent-seeking game and larger second-period wealth reduces it. When both first-period and second-period wealth increase, investment in the rent-seeking game declines if the rent-seeker is risk averse and imprudent. Lastly, when a risky level of second-period wealth is introduced, the rent-seeker increases (reduces) investment in the rent-seeking game if he is risk averse and prudent (imprudent).

International audience; We study the consequences of introducing random costs (as opposed to certain costs) on the propensity to implement self-protection actions, i.e. actions reducing the probability of a loss. Our analysis is performed in four standard self-protection frameworks: (1) the one-period model in which the cost and benefit occur at the same period of time; (2) a variation of this one-period model where wealth in each state of nature is a random variable; (3) the one-period model where the cost of the self-protection action is only paid in the absence of loss; (4) the two-period model in which the cost of self-protection precedes its benefit. For each of these models we provide a set of conditions ensuring clear-cut effects to occur and a specific interpretation for each of them.

This work reviews recent developments in the literature analyzing precautionary saving. After a description of traditional precautionary saving theory, which considers labor income risk and interest rate risk, we present different research lines which introduce a wide range of extensions and generalizations of the classical model: the contemporaneous presence of multiple risks, changes in risks of different types, multiple variables affecting household utility, preferences non-featuring risk aversion and joint decisions on many choice variables. For each of these issues, we provide specific highlights which summarize the main results obtained in the literature. Lastly, we briefly discuss the analyzes beyond the classical model.

This paper examines contemporaneous choices of saving and health prevention under a two-argument utility of wealth and health. Unlike the traditional approach to modelling the cost of prevention as a decline in wealth, health prevention here is assumed to mainly reduce current health level in exchange for a lower probability of contracting a disease in the future. We show that the optimal levels of the two instruments of risk management can move either in the same direction or in opposite directions. One key element in distinguishing these two cases is whether a decision maker is correlation averse or correlation prone. Together with the relative importance of substitution effect over income effect on saving, the sign of correlation attitude is also relevant in determining the reaction of optimal saving and health prevention when the interest rate changes. Lastly, several combinations of preferences in different aspects are provided, which lead to unambiguous effects of a background risk in wealth on the two optimal choices.

Significance The detection of frauds is one of the most prominent applications of the Newcomb–Benford law for significant digits. However, no general theory can exactly anticipate whether this law provides a valid model for genuine, that is, nonfraudulent, empirical observations, whose generating process cannot be known with certainty. Our first aim is then to establish conditions for the validity of the Newcomb–Benford law in the field of international trade data, where frauds typically involve huge amounts of money and constitute a major threat for national budgets. We also provide approximations to the distribution of test statistics when the Newcomb–Benford law does not hold, thus opening the door to the development of statistical procedures with good inferential properties and wide applicability., The contrast of fraud in international trade is a crucial task of modern economic regulations. We develop statistical tools for the detection of frauds in customs declarations that rely on the Newcomb–Benford law for significant digits. Our first contribution is to show the features, in the context of a European Union market, of the traders for which the law should hold in the absence of fraudulent data manipulation. Our results shed light on a relevant and debated question, since no general known theory can exactly predict validity of the law for genuine empirical data. We also provide approximations to the distribution of test statistics when the Newcomb–Benford law does not hold. These approximations open the door to the development of modified goodness-of-fit procedures with wide applicability and good inferential properties.

We study relationships between different aspects of risk preferences. We show that, under the assumptions of non-satiation and bounded marginal utility, some additional conditions on the asymptotic behaviour of the indices of relative prudence and relative temperance ensure that risk aversion, prudence and temperance are equivalent. Similar conclusions are derived for higher-degree risk aversion. Moreover, some links between indices of relative risk aversion of different degrees are derived. The implications of these results for several economic problems which involve risk changes are discussed.

We study risk effects, including higher-order risk effects, on optimal decision making in the linear-payoff model. This model includes the standard portfolio problem, the coinsurance problem, the problem of output choice with a risky price or a risky cost, and the problem of hedging a risky return as special cases. We distinguish between risk taking and risk mitigation and between uncertainty over a benefit and uncertainty over a cost. We identify restrictions on preferences for clear-cut comparative static effects of Nth-degree risk increases. For an uncertain benefit, the decision maker compensates increased risk by lowering exposure to risk; for an uncertain cost, the behavioral response depends on the parity of the order of the risk change. This is because only even-order risk changes increase the riskiness of terminal wealth while odd-order risk changes reduce it. To resolve this discrepancy, we introduce a new class of stochastic dominance relations that is suitable for uncertainty over a cost.

The paper aims to study in depth the impact of three pull drivers, namely price, assortment and promotion, on store-switching from Hypermarkets and Supermarkets towards Discounters. Through panel d...

This paper studies optimal prevention and cure when an agent copes with two different sources of uncertainty: uncertainty on disease effect and uncertainty on cure effectiveness. We first analyze how optimal choices are affected by uncertainty when prevention and cure do not interact. Under both types of uncertainty, we obtain that the optimal level of prevention rises. Furthermore, we characterize for each source of uncertainty the conditions for the optimal level of cure to increase. We show that these conditions are related to different measures of prudence in health and cross-prudence in wealth. Lastly, we generalize our results to the case where prevention and cure interact and characterize for each source of uncertainty the conditions for the optimal level of prevention and cure to jointly increase. These conditions are similar to those obtained in the case without uncertainty but, in this context, Edgeworth–Pareto complementarity is also required.

Over recent years, gluten-free products have shown a significant increase in consumption internationally. Retailers from the modern grocery distribution have the opportunity to take advantage of this positive trend, thus benefitting remarkably in terms of sales and store patronage. The present work is based on the analysis of Italian IRI sell-out data from 2015 to 2019 and aims to verify the role of assortment as an effective retail marketing lever in stimulating gluten-free products sales share compared to that of gluten-containing counterparts. Applying different panel data techniques, we obtained that increasing their assortment share can significantly stimulate gluten-free products sales in general and, within this segment, private label sales in particular.

This article studies how health and wealth investments react to the presence of random returns, distinguishing the case where only the level of health investment is chosen from the case where both health and wealth investments are chosen. We show that this reaction depends mainly on certain features of preferences: cross‐prudence/imprudence in wealth, cross‐prudence/imprudence in health, and the value of the indexes of relative prudence in wealth and in health being larger or smaller than the threshold of 2. We also show the role of Edgeworth–Pareto substitutability/complementarity between wealth and health investments in determining optimal choices.

This paper examines the effect of prudence on the optimal choices of advance and contemporaneous prevention in a context where the two kinds of prevention are used together. We show that, under some conditions on the probability of loss occurrence, prudence tends to increase advance prevention and to reduce contemporaneous prevention, while imprudence tends to do the opposite. Further results on the effect of prudence/imprudence on agents’ optimal behavior are provided.

International audience; This work studies the implications of some aspects of preferences toward risk in the choice between two binary lotteries exhibiting a common consequence. The results obtained are then applied to two different problems: the choice between two risky challenges characterized by different rewards in the case of success and different probabilities of success and the choice between self-protection and self-insurance in the presence of the risk of incurring financial loss.

This paper reconsiders the conditions determining the optimal response of a decision maker in case of stochastic changes in multiplicative risks. In particular, we focus on an optimal portfolio choice where the return of the risky asset exhibits an Nth-degree risk increase. We provide two interpretations of the conditions analyzed. The first interpretation involves a comparison between the elasticities with respect to the investment in the risky asset of the Nth derivative of the utility function and of the distance between the Nth moments of the two risks. The second interpretation refers to the direction of the change in the utility premium when the investment in the risky asset changes. We then study the linkages between the conditions determining optimal responses of risky investment in the case of risk increases of different degrees. We show that, under some assumptions, the optimal behavior of an agent in the case of Nth degree risk increase makes it possible to infer agent’s behavior in case of risk increases of lower degrees.

Store Brands (SBs) have experienced a strong increase in both value and unit sales internationally during the last decades; thus their market share has been constantly growing. Starting from these considerations, the present work aims at deepening the topic of inter-brand competition within the FMCG market and, in particular, the market share trade-off between Leading National Brands (LNBs) and Store Brands. Our empirical analysis is based on panel data about 322 product categories sold within the Modern Grocery Distribution stores in the 2010–2013 period. Results obtained show: (i) the existence of a relationship between the increase in the LNB-SB price gap and the switching of market share from the former towards the latter; (ii) the consolidation of a change in consumers' purchasing preference in favor of SBs; (iii) the existence of an inverse relationship between the inter-brand competition intensity and the retail branding life cycle evolutionary stage, which is different for each product category.

This paper identifies a new sufficient condition for a prudent agent to have positive precautionary saving in the presence of labor income and interest rate risks of any size. We also provide three economic interpretations for this condition focusing respectively on the marginal effect of saving on total income variance, on the sign of the covariance between total income and the return of saving, and on the effect of saving on the utility premium.

International audience; While it reduces the probability of facing a primary (or vaccine-preventable) disease, vaccination may also introduce the risk of facing vaccine induced side effects. In this paper, we address the link between this feature of vaccination and attitudes toward risk. Risk aversion is shown to increase the propensity to vaccinate when the primary disease is lethal or when the risks of primary disease and of side effects are faced in different periods. When the primary disease is non-lethal and may occur together with side effects, we show how the effect of risk aversion is affected by the probability and severity of each disease. The implications of the introduction of random effects of primary disease and of random side effects are also analyzed.

An in-depth analysis of the impact of retailing-mix levers on private label market share in the Fast Moving Consumer Goods sector in Italy is made. The direction and intensity of the impact of assortment, price and sales promotion is measured for different product categories. OLS and GMM regressions run on an IRI Group dataset indicate a strong positive effect of product range, which can be considered as a proxy of on-shelf brand visibility. Increasing private label assortment share thus appears to constitute the key supply-side factor in augmenting sales share on the Italian grocery retailing market.

This paper studies precautionary saving when many small risks are considered. We first introduce two simultaneous risks: labor income and interest rate risks. We show that, in this context, sufficient conditions for precautionary saving are weaker than in similar models. Moreover, we find that, unlike previous literature, precautionary saving can occur in the case of negative covariance between the two risks and in the case of imprudence. We then extend our analysis to a three-risk framework, where a background risk is included. We derive sufficient conditions for precautionary saving which are interpreted in the light of the previous literature.

International audience; Consider a decision maker who can engage in effort to increase the probability of facing a better risky situation. Intuition suggests that effort should increase when there is a greater difference between the best risky situation and the worse one. We show that this intuition is not necessarily valid and we consider the cases of risk averters and risk lovers.

Purpose – The purpose of this paper is to investigate the topic of multi-channel retailing. Specifically, the research intends to determine if and to what extent the opening of physical stores by a former web-only retailer reduces or extends overall retail sales, and whether such effects tend to change over time. Empirical analysis focuses on data elaboration from a retailer who has passed from the initial mono-channel model (pure online), to a multi-channel one with the opening of stores. Design/methodology/approach – Through the analysis of an internal data set of a leading consumer electronics retailer applying Probit and Logit estimation techniques, the authors extract information about actual customers’ purchases (or rather retail sales) in three newly opened stores and about online purchases (through an e-commerce web site managed by the same retailer with the same store brand) by people living in the new store service areas before and after the openings. Findings – The paper shows that, for the single customer, the probability of purchasing online is reduced by the store opening in the short term, but tends to increase in the long term. Besides, results indicate that long-term synergy between the two channels depends mainly on indirect influence due to the mere presence of the store brand in the area rather than on the direct experience of shopping in the store. Research limitations/implications – The study highlights that channel portfolio enlargement from mono- to multi-channel retailing tends to activate a sort of life cycle; while in the early phase of store addition web sales tend to be cannibalized because the two channels are perceived as “substitutes” for each other, in the long run migration turns into a synergy effect; different channels tend to interact with and reinforce each other as customer touch points of the same retailer, in an omni-channel perspective. Originality/value – The paper herein presents various original elements concerning types of available data (actual sales rather than consumers’ intentions/perceptions and individual level data rather than aggregate level ones), estimation technique used (binary choice model) and research hypotheses (distinguishing between “direct” and “indirect” synergy effects in multi-channel retailing).

This paper estimates a theory-based regression model which studies the macro-economic impact of environmental and consumption risks on consumption growth in the Mediterranean region. The analysis is carried out using time series aggregate data for 13 Mediterranean countries over the period 1965–2008. The results indicate that both risks and their interaction significantly influence consumption dynamics. The estimates of the indices of relative risk aversion and relative prudence, as well as the relative preference for the quality of environment, suggest marked cross-country heterogeneity.

This paper applies the Kydland–Prescott framework of dynamic inconsistency to fiscal policy by considering the trade-off between output and debt stabilization. In a static framework, commitment to debt stabilization is superior to discretion only when the public debt–GDP ratio is high. Discretion, though, is always inferior to an optimal fiscal rule, which however entails a positive predetermined debt growth. As usual, the introduction of uncertainty determines an additional advantage for discretion. Finally, if dynamic considerations are introduced, the optimal fiscal rule is characterized by positive debt growth in the short run and debt stabilization in the long run.

This work shows that the risk premium can be a mistaken measure of the reduction in utility caused by risk since, when different levels of wealth are considered, the relative size of the former is related to that of the latter only in some cases. The analysis indicates that this is because the size of the risk premium depends both on the size of the disutility due to risk and on the size of the marginal utility of money. Some simple economic problems where this conclusion is relevant are examined. The paper shows which inferences on agents behaviour can and cannot be drawn in these cases.

This article aims to test the conjecture advanced in a recent work by Bianchi and Menegatti (Appl Econ Lett 14:963–967, 2007) that usual β-convergence panel regressions may produce biased evidence, due to their inability to distinguish between actual catching-up across countries and decreasing growth rates over time within countries. The test considers different sub-groups in a dataset of 72 countries for the period 1970–2000 and introduces both human capital and proxies for technological differences into the analysis. The results confirm the conjecture that traditional evidence about β-convergence may be misleading; they also show that catching-up across countries is weaker than usually claimed and that this process occurred only in some sub-groups of countries.

We examine optimal saving in the presence of two small risks: income risk and a background risk. First, we compute the necessary and sufficient condition for a positive precautionary saving, showing that it depends on two terms capturing respectively the direct effect of income risk and the interaction between the two risks. Second, we examine the necessary and sufficient condition for a positive extra-saving due to the contemporaneous presence of the two risks. We show that this condition also depends on a term capturing the direct effect of background risk and that it can hold independently of the previous one.

This paper proposes a new interpretation for the precautionary saving motive: when future income is uncertain, agents increase saving in order to cause a reduction in the disutility due to uncertainty. Furthermore, the paper shows that the usual necessary and sufficient condition for precautionary saving is the condition ensuring this effect to occur and gives new insights into the relationship between risk aversion indexes and precautionary saving.

We show that the use of pooled and panel data in estimating β-convergence across countries (or other territorial areas) may involve some pitfalls, since these techniques cannot properly distinguish between actual convergence and the possibility of decreasing growth rates over time within each country (or territorial unit). We also show how the possible bias in the estimates can be eliminated.

This work tests precautionary saving theory in Italian regions, examining the relationship between consumption growth and income uncertainty in a panel of five-year averages in the period 1981 to 2000. The analysis used two different measures for income uncertainty. The first is a naive measure given by the variance of GDP growth rates while the second is a more sophisticated one obtained by computing the conditional variance by means of the expectation of GDP growth. This expectation is obtained by using the best ARMA process for each region. The results obtained confirm the importance of the precautionary saving motive in consumption decisions.

The paper studies the interaction between saving and tertiary health prevention in a two-period framework where future decline in health is certain. The cost of investment in prevention occurs in the health attribute and future benefits include an increase in the probability of receiving treatment and a partial recovery of health if treated. In this framework, we show that the effects of changes in the returns on saving and on tertiary prevention depend on agent's correlation attitude (either correlation aversion or correlation loving). Furthermore, we study how prudence/imprudence in health and cross-prudence/imprudence in wealth determine the impact of a background health risk on optimal choices. Finally, we analyze the effect of high-order preferences in case of high-degree risk changes.

For a utility function $u\left( x\right) $ , the functions $a\left( x\right) =-u^{\prime\prime}\left( x\right) /u^{\prime}\left( x\right) $ and $p\left( x\right) =-u^{\prime\prime\prime}\left( x\right) /u^{\prime\prime}\left( x\right) $ are the Arrow-Pratt coefficient of absolute risk aversion (ara) and the coefficient of absolute prudence (ap). They measure respectively an agent’s sensitivity to risk and the strength of the precautionary saving motive under income uncertainty.

We consider a simple, self-financing and informationally undemanding scheme to reduce the deadweight loss due to a monopolist's market power. Essentially, we propose taxing the monopolist and applying the tax revenue to generate a public demand for his output. It turns out that a favorable scenario for such a reform to generate an ‘efficiency increase’ (i.e. to increase total output) is an elasticity of market demand with an absolute value of less than 3 (a seemingly ‘realistic’ condition). We also consider the case for the implementation of the first best, and compare specific and ad-valorem taxes as a way to finance the public demand.

This paper empirically estimates a micro-founded model which studies the macroeconomic impact of environmental and financial risks on consumption choices in the Mediterranean Region. The analysis is carried out using time series aggregate data for fourteen Mediterranean countries over the period 1965-2008. Our results indicate that both risks and their interaction significantly influence consumption dynamics. Our estimates of the indexes of relative risk aversion and relative prudence, as well as the relative preference for the quality of environment suggest marked cross-country heterogeneity.

This paper empirically estimates a micro-founded model which studies the macroeconomic impact of environmental and financial risks on consumption choices in the Mediterranean Region. The analysis is carried out using time series aggregate data for fourteen Mediterranean countries over the period 1965-2008. Our results indicate that both risks and their interaction significantly influence consumption dynamics. Our estimates of the indexes of relative risk aversion and relative prudence, as well as the relative preference for the quality of environment suggest marked cross-country heterogeneity.

This paper studies choices on prevention and cure in a context where an agent bears a health risk. In this framework we first analyze interdependence between the optimal levels of prevention and cure. Second, we study the effects on optimal choices of a change in the cost of one of the two instruments and we examine substitutability between them. Finally we present findings about the effects of a change either in the seriousness of the possible disease or in the efficiency of the medical treatment.

In this paper, we consider a decision-maker facing a financial risk flanked by a non-financial background risk such as health or environmental risk. A decision has to be made about the amount of an investment (in the financial dimension) resulting in a future benefit either in the same dimension (savings) or in the other dimension (environmental quality or health improvement. In this framework, we study the impact of the correlation between the two risks on optimal choices. In the saving problem, we find conditions ensuring that positive correlation between the two risks implies that the optimal amount of savings increases. These conditions involve specific requirements on the direct and cross derivatives of the two-argument utility function. Similarly, we find a different and specific set of conditions ensuring that the same conclusion on optimal investment for health (environmental) improvement is reached. The two sets of conditions determined support the conclusion that the signs of the derivatives of the two-argument utility function should alternate.

This paper studies the empirical relationship between consumption and saving under two different sources of uncertainty: financial risk and environmental risk. The analysis is carried out using time series data for six advanced economies in the period 1965-2007. The results support the theoretical conclusions that both financial risk alone and the interaction between financial and environmental risks affect consumption. Moreover, we suggest a solution to some shortcomings which concern the empirical analysis performed with one-argument utility functions. Finally, we provide new estimates of indexes of relative risk aversion and relative prudence, and relative preference of environmental quality.