Wealth Effects on Self-Insurance and Self-Protection against Monetary and Nonmonetary Losses
AbstractThis paper considers the wealth effects on self-insurance and self-protection activities against possible losses of monetary wealth such as properties and nonmonetary wealth such as health. Increased initial income or monetary wealth decreases the demand for self-insurance against monetary wealth loss under the decreasing absolute risk aversion assumption, and has an ambiguous effect on self-protection. However, increased initial monetary wealth increases both self-insurance and self-protection against health loss, explaining empirical trends, if wealth and health are complements. When multiple self-insurance activities against both types of losses are considered, the effect of an increase in initial monetary wealth on self-insurance against health loss remains the same, but the effect on self-insurance against wealth loss depends on the preferences. The Geneva Risk and Insurance Review (2005) 30, 147–159. doi:10.1007/s10713-005-4676-1
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Volume (Year): 30 (2005)
Issue (Month): 2 (December)
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