Risk Aversion and Incentive to Abide By Legal Rules

Title
Risk Aversion and Incentive to Abide By Legal Rules
Authors
Yoo, Yoon-Ha
Keywords
risk aversion; legal enforcement; uncertainty
Issue Date
2004-12
Series/Report no.
KDI Working Paper Series;04-24
Abstract
Does a more risk-averse individual put greater effort to abide by legal rules than the less risk-averse? Or are the criminals really a race apart who is exceptionally risk prone? This paper examines the relationship between the law-abiding effort of an individual and his degree of risk aversion. It is shown that a monotone positive relationship between risk aversion and law-abiding cost holds only when the probability of legal sanction is exogenously given. Once the probability is endogenously chosen by the potential perpetrator, this simple relation no longer holds. In short, a fairly risk-averse individual can still commit a crime.
URI
http://archives.kdischool.ac.kr/handle/11125/17048
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KDI School Working Paper Series


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