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On the substitution between saving and prevention

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  • M. Menegatti

    ()

  • F. Rebessi

Abstract

This work makes a joint analysis of prevention and saving decisions. First we determine the optimal levels of the two variables and we analyze substitution between them. Second we provide some comparative statics results in order to determine the effects on optimal saving and prevention of changes in exogenous present and future wealth and in possible future loss. Finally we introduce insurance into the model and we extend the separation result, derived in the literature which studies the substitution between insurance and saving, to the case where prevention is considered too.

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File URL: http://swrwebeco.econ.unipr.it/RePEc/pdf/I_2010-03.pdf
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Bibliographic Info

Paper provided by Department of Economics, Parma University (Italy) in its series Economics Department Working Papers with number 2010-EP03.

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Length: 10 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:par:dipeco:2010-ep03

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Keywords: Prevention; Saving; Insurance;

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References

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  1. Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-48, July-Aug..
  2. DIONNE, George & EECKHOUDT, Louis, . "Self-insurance, self-protection and increased risk aversion," CORE Discussion Papers RP -623, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Rothschild, Michael & Stiglitz, Joseph E., 1971. "Increasing risk II: Its economic consequences," Journal of Economic Theory, Elsevier, vol. 3(1), pages 66-84, March.
  4. Menegatti, Mario, 2001. "On the Conditions for Precautionary Saving," Journal of Economic Theory, Elsevier, vol. 98(1), pages 189-193, May.
  5. Bruno Jullien & Bernard Salanié & François Salanié, 1999. "Should More Risk-Averse Agents Exert More Effort?," The Geneva Risk and Insurance Review, Palgrave Macmillan, vol. 24(1), pages 19-28, June.
  6. Hall, Robert E, 1988. "Intertemporal Substitution in Consumption," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 339-57, April.
  7. M. Menegatti, 2008. "Optimal prevention and prudence in a two-period model," Economics Department Working Papers 2008-EP03, Department of Economics, Parma University (Italy).
  8. Dionne, Georges & Eeckhoudt, Louis, 1984. "Insurance and saving: some further results," Insurance: Mathematics and Economics, Elsevier, vol. 3(2), pages 101-110, April.
  9. Jingyuan Li & Georges Dionne, 2010. "The Impact of Prudence on Optimal Prevention Revisited," Cahiers de recherche 1024, CIRPEE.
  10. Miles S. Kimball, 1989. "Precautionary Saving in the Small and in the Large," NBER Working Papers 2848, National Bureau of Economic Research, Inc.
  11. Sandmo, Agnar, 1970. "The Effect of Uncertainty on Saving Decisions," Review of Economic Studies, Wiley Blackwell, vol. 37(3), pages 353-60, July.
  12. Louis Eeckhoudt & Rachel J. Huang & Larry Y. Tzeng, 2012. "Precautionary Effort: A New Look," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 79(2), pages 585-590, 06.
  13. Louis Eeckhoudt & Christian Gollier, 2005. "The impact of prudence on optimal prevention," Economic Theory, Springer, vol. 26(4), pages 989-994, November.
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Citations

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Cited by:
  1. Mario Menegatti, 2012. "New results on optimal prevention of risk averse agents," Economics Bulletin, AccessEcon, vol. 32(3), pages 2166-2173.
  2. Hofmann, Annette & Peter, Richard, 2012. "Self-insurance, self-protection, and increased risk aversion: An intertemporal reinvestigation," Working Papers on Risk and Insurance 26, University of Hamburg, Institute for Risk and Insurance.
  3. Christophe Courbage & Henry Loubergé & Richard Peter, 2013. "Optimal Prevention for Correlated Risks," Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva 13071, Institut d'Economie et Econométrie, Université de Genève.

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