Extremal configurations for optimal prevention and damage control

Moshe Justman, Abraham Mehrez

Research output: Contribution to journalArticlepeer-review

Abstract

Early warning and control technologies offer prospective users the possibility of reducing both the magnitude of expected losses ('self insurance') and the probability of their occurence ('self protection'). In their seminal work Ehrich and Becker (1972) demonstrated that under certain conditions an optimal warning and control system should correspond to an interior point of the solution space. This paper demonstrates that there are alternative, plausible conditions for which risk neutral decision makers should choose an extremal solution - no protection at all or maximal feasible protection - and suggests an approximation procedure for the preliminary identification of such cases.

Original languageEnglish
Pages (from-to)1637-1643
Number of pages7
JournalEuropean Economic Review
Volume32
Issue number8
DOIs
StatePublished - 1 Jan 1988

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