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1 results

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

  • David Bardey
  • Journal:
    Recherches Économiques de Louvain/ Louvain Economic Review / Volume 70 / Issue 1 / 2004
    Published online by Cambridge University Press:
    17 August 2016, pp. 109-115
    Print publication:
    2004

  • 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.