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Wealth Effects on Self-Insurance and Self-Protection against Monetary and Nonmonetary Losses

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  • Kangoh Lee

    (Department of Economics, Towson University, Towson, Maryland 21252, e-mail: klee@towson.edu)

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    Abstract

    This 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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    Bibliographic Info

    Article provided by Palgrave Macmillan in its journal The Geneva Risk and Insurance Review.

    Volume (Year): 30 (2005)
    Issue (Month): 2 (December)
    Pages: 147-159

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    Handle: RePEc:pal:genrir:v:30:y:2005:i:2:p:147-159

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    Cited by:
    1. Burren, Daniel, 2013. "Insurance demand and welfare-maximizing risk capital—Some hints for the regulator in the case of exponential preferences and exponential claims," Insurance: Mathematics and Economics, Elsevier, vol. 53(3), pages 551-568.
    2. Darri-Mattiacci, Giuseppe & Langlais, Eric, 2008. "Social wealth and optimal care," MPRA Paper 9418, University Library of Munich, Germany.
    3. Annette Hofmann, 2007. "Internalizing externalities of loss prevention through insurance monopoly: an analysis of interdependent risks," The Geneva Papers on Risk and Insurance Theory, Springer, vol. 32(1), pages 91-111, June.
    4. Courbage, Christophe & Rey, Béatrice & Treich, Nicolas, 2013. "Prevention and precaution," TSE Working Papers 13-445, Toulouse School of Economics (TSE).

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