Lecture 0525

Lecture 0525 - Lecture: Risk, Insurance, & Poverty Traps...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
5/25/10 Business Today: Finish risk intro and begin insurance and poverty trap discussion o Hand in PS3 o Reading 1: “Income smoothing and consumption smoothing” o Reading 2: “Poverty traps and index based risk transfer products” Thursday: Index insurance o The logic of index insurance and an example of a research agenda o Reading: “Poverty traps and index based risk transfer products” o Receive PS4 – due next Thurs in class Sections this week o Work through examples of risk key concepts o Bring a calculator Next Tuesday (June 1): Environment and Development Next Thursday (June 3): How do we measure the impact of development programs? Final Exam: Wednesday, June 9 at 1-3 same room o Not cumulative, only on things since midterm Key Concepts: Certainty Equivalent and Risk Premium Situation: o I start out w/ initial wealth, W o I consider doing a risky activity that generates income, y y = random variable Certainty equivalent (CE): the amt of money that, if paid w/ certainty, makes me indifferent between receiving the money vs. undertaking the risky activity o CE is implicitly defined by U(W+CE)=EU(W+y) o Utility of receiving CE w/ certainty = expected value of utility if I the risky activity Risk premium (P): amt of money I am willing to pay in order to eliminate the risk associated w/ activity o P implicitly defined by: U(W+E(y) - P) = EU(W+y)
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This document was uploaded on 09/11/2011.

Page1 / 4

Lecture 0525 - Lecture: Risk, Insurance, & Poverty Traps...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online