Risk Preferences Necessary to Choose Life Insurance Funding of Buy-Sell Arrangements
Tauer, Loren W
Pratt-Arrow risk aversion coefficients are derived such that term life insurance funding of buy-sell arrangements is preferred by decision makers with risk preferences greater than those breakeven coefficients. Given previous estimates of farmers' risk preferences, anything greater than a 25 percent loading of actuarially fair premiums would discourage life insurance funding.
Charles H. Dyson School of Applied Economics and Management, Cornell University