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Precautionary Investment in Wealth and Health

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  • Desu Liu
  • Mario Menegatti

Abstract

This article studies how health and wealth investments react to the presence of random returns, distinguishing the case where only the level of health investment is chosen from the case where both health and wealth investments are chosen. We show that this reaction depends mainly on certain features of preferences: cross‐prudence/imprudence in wealth, cross‐prudence/imprudence in health, and the value of the indexes of relative prudence in wealth and in health being larger or smaller than the threshold of 2. We also show the role of Edgeworth–Pareto substitutability/complementarity between wealth and health investments in determining optimal choices.

Suggested Citation

  • Desu Liu & Mario Menegatti, 2019. "Precautionary Investment in Wealth and Health," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 86(1), pages 237-255, March.
    • Handle: RePEc:bla:jrinsu:v:86:y:2019:i:1:p:237-255
    DOI: 10.1111/jori.12212
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    Cited by:

    1. Donatella Baiardi & Marco Magnani & Mario Menegatti, 2020. "The theory of precautionary saving: an overview of recent developments," Review of Economics of the Household, Springer, vol. 18(2), pages 513-542, June.
    2. Guillem López-Casasnovas & Marc Saez, 2020. "Saved by Wealth? Income, Wealth, and Self-Perceived Health in Spain during the Financial Crisis," IJERPH, MDPI, vol. 17(19), pages 1-20, September.
    3. Christophe Courbage & Richard Peter & Béatrice Rey, 2022. "Incentive and welfare effects of correlated returns," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 89(1), pages 5-34, March.

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