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On the role of market insurance in a dynamic model

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  • Helge Braun

    ([1] IZA, P.O. Box 7240, 53072, Bonn, Germany, e-mail: koeniger@iza.org [2] University of British Columbia, #997-1873 East Mall, Vancouver, BC, Canada V6T 1Z1, e-mail: hbraun@interchange.ubc.ca)

  • Winfried Koeniger

    (IZA, P.O. Box 7240, 53072, Bonn, Germany, e-mail: koeniger@iza.org)

Abstract

Durables like cars or houses are a substantial component in the balance sheets of households. These durables are exposed to risk and can be insured in the market. We build a dynamic model in which agents have three possibilities to cope with the risk exposure of the durable stock: (i) purchase of market insurance, (ii) buffer-stock saving of the riskless asset or (iii) adjustment of the durable stock. We calibrate our model to the US economy and find a small role for market insurance. The Geneva Risk and Insurance Review (2007) 32, 61–90. doi:10.1007/s10713-007-0001-5

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

Volume (Year): 32 (2007)
Issue (Month): 1 (June)
Pages: 61-90

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Handle: RePEc:pal:genrir:v:32:y:2007:i:1:p:61-90

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References

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  1. S. Rao Aiyagari, 1993. "Uninsured idiosyncratic risk and aggregate saving," Working Papers 502, Federal Reserve Bank of Minneapolis.
  2. Stephanie Schmitt-Grohe & Martin Uribe, 2002. "Solving Dynamic General Equilibrium Models Using a Second-Order Approximation to the Policy Function," NBER Technical Working Papers 0282, National Bureau of Economic Research, Inc.
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  17. Alessi, R & Michael Devereux & Guglielmo Weber, 1993. "Intertemporal consumption, durables and liquidity constraints: a cohort analysis," IFS Working Papers W93/07, Institute for Fiscal Studies.
  18. Eeckhoudt, Louis & Gollier, Christian & Schlesinger, Harris, 1991. "Increases in risk and deductible insurance," Journal of Economic Theory, Elsevier, vol. 55(2), pages 435-440, December.
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  20. Eric Smith & Randall Wright, 1991. "Why is automobile insurance in Philadelphia so damn expensive?," Staff Report 139, Federal Reserve Bank of Minneapolis.
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Cited by:
  1. Brunette, Marielle & Couture, Stéphane & Langlais, Eric, 2007. "Hedging Strategies in Forest Management," MPRA Paper 5228, University Library of Munich, Germany.
  2. Liu, Yanyan & Myers, Robert, 2012. "The dynamics of insurance demand under liquidity constraints and insurer default risk:," IFPRI discussion papers 1174, International Food Policy Research Institute (IFPRI).

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