Beneficial changes in dependence structures and two-moment decision models

We analyze the comparative static effects of beneficial changes in the dependence structure between risks. In a quasi-linear decision model with an endogenous risk and a dependent background risk, a mean–variance decision maker will choose a lower level of risky activities upon an increase in the coefficient of correlation of the risks if, and only if, the elasticity of risk aversion is larger than −0.5. For elliptical distributions, the elasticity condition is equivalent to relative prudence being smaller than 1.