Explaining the characteristics of the power (CRRA) utility family
Article first published online: 22 JAN 2008
Copyright © 2008 John Wiley & Sons, Ltd.
Volume 17, Issue 12, pages 1329–1344, December 2008
How to Cite
Wakker, P. P. (2008), Explaining the characteristics of the power (CRRA) utility family. Health Econ., 17: 1329–1344. doi: 10.1002/hec.1331
- Issue published online: 14 NOV 2008
- Article first published online: 22 JAN 2008
- Manuscript Accepted: 2 NOV 2007
- Manuscript Revised: 17 SEP 2007
- Manuscript Received: 30 DEC 2006
- utility measurement;
- quality-of-life measurement;
- constant proportional trade-offs;
- constant elasticity of substitution
The power family, also known as the family of constant relative risk aversion (CRRA), is the most widely used parametric family for fitting utility functions to data. Its characteristics have, however, been little understood, and have led to numerous misunderstandings. This paper explains these characteristics in a manner accessible to a wide audience. Copyright © 2008 John Wiley & Sons, Ltd.