Hostname: page-component-78c5997874-s2hrs Total loading time: 0 Render date: 2024-11-05T07:00:18.299Z Has data issue: false hasContentIssue false
  • English
  • Français

A paradoxical risk aversion effect on the consumers' demand for quality

Published online by Cambridge University Press:  17 August 2016

David Bardey
Get access

Summary

In this article, we consider a demand model for a durable good with unknown quality. The quality of the good is uncertain in the sense that the consumer ignores (ex ante) whether the good will break down or not, higher quality implying a higher probability of survival. Taking into account this uncertainty around the quality, we show that the demand for quality can, paradoxically, decrease when consumers are more risk averse. We prove that this risk aversion effect can disturb the second-order price discrimination policies applied by some firms. We reveal the link between quality demand and self-protection theory.

Résumé

Résumé

Dans cet article, nous considérons un modèle de demande d'un bien durable de qualité inconnue. La qualité du bien est incertaine dans la mesure où le consommateur ignore (ex ante) si le bien va se décomposer ou non, une meilleure qualité impliquant une meilleur probabilité de maintien. Prenant en compte l'incertitude concernant la qualité, nous montrons que la recherche de qualité peut, paradoxallement, diminuer lorsque les consom-mateurs sont plus averses au risque. Nous prouvons que l'effet d'aversion au risque peut perturber les politiques de discrimination de prix de second ordre mises en place par certaines firmes. Nous montrons le lien existant entre la recherche de qualité et la théorie de l'auto-protection.

Keywords

différenciation verticaleaversion au risqueauto-protectionD81D82L12vertical differentiationrisk aversionself-protectionD81D82L12
Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 70 , Issue 1 , 2004 , pp. 109 - 115
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 2004 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

*

I thank Anne Perrot, Philippe Choné, Maia David, Maiseu Dumans, Jorge Ferrando, Romain Lesur, Laurent Linnemer and Michael Visser for their comments and remarks. I'd like to thank the anonymous referee of the review for his helpful comments.

**

UMR CNRS 5604, Université des Sciences Sociales, Manufacture des Tabacs, Bat F - 2ème étage, Bureau 207, 21 Allée de Brienne, 31000 Toulouse, France. E-mail: [email protected]

References

Bibliographie

Briys, E. and Schlesinger, H. (1990), “Risk Aversion and the Propensities for Self-Insurance and Self-Protection”, Southern Economic Journal, 57, 2, pp.458–467.Google Scholar
Deneckere, R. and Me Afee, P. (1996), “Damages Goods”, Journal of Economics and Management Strategy, 5, pp.149–174.Google Scholar
Eeckhoudt, L. and Dionne, G. (1985), “Self-Insurance, Self-Protection and Increased Risk Aversion”, Economics Letters, 17, pp.39–42.Google Scholar
Eeckhoudt, L., Godfroid, Ph. and Gollier, C. (1997), “Willingness to pay, the Risk Premium and Risk Aversion”, Economics Letters, 55, pp.355–360.Google Scholar
Grilo, I. and Wauthy, X. (2000), “Price Competition when Product Quality is Uncertain”, Recherches Economiques de Louvain, 66(4), pp.415–437.Google Scholar
Kihlstrom, R. and Mirman, L. (1974), “Risk Aversion with many commodities”, Journal of Economic Theory, 8, pp.361–388.Google Scholar
Krishna, K. and Winston, T. (2000), “If at first you don’t succed… Profits, Prices and Market Structure in a Model of Quality with Unknowable Consumer Heterogeneity”, NBER Working Paper Series.Google Scholar
Laffont, J-J. and Martimort, D. (2002), Theory of Incentives : The Principal-Agent Model, in progress.Google Scholar
Mussa, M. and Rosen, S. (1978), “Monopoly and Product Quality”, Journal of Economic Theory, 18, pp.201–317.Google Scholar
Pratt, J. (1964), “Risk Aversion in the Small and in the Large”, Econometrica, pp.122–136.Google Scholar