The impact of ambiguity on health prevention and insurance
AbstractIn this paper, we analyze the choice of primary prevention made by individuals who bear a risk of being in bad health and an additive risk (of complications) that occurs after a disease has been diagnosed. By considering a two argument utility (depending on wealth and health), we show that the presence of a well-known (no ambiguity) additive risk of complications induces more investment in primary prevention by a risk-averse agent only if her preferences does not display some cross prudence in wealth (u122 0). We also show that full (partial) insurance can be optimal even if insurance premia are loaded (fair). These results hold with and without prevention and the individuals attitudes toward correlation help explain the impact of ambiguity on the optimal individual decisions.
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Bibliographic InfoPaper provided by Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg in its series Working Papers of BETA with number 2010-08.
Date of creation: 2010
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health; utility; ambiguity; prevention; insurance.;
Find related papers by JEL classification:
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- I19 - Health, Education, and Welfare - - Health - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-11 (All new papers)
- NEP-HEA-2010-04-11 (Health Economics)
- NEP-IAS-2010-04-11 (Insurance Economics)
- NEP-UPT-2010-04-11 (Utility Models & Prospect Theory)
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