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Self-insurance and saving under a two-argument utility framework

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Listed:
  • Jimin Hong

    (Soongsil University)

  • Kyungsun Kim

    (Seoul National University Business School)

Abstract

This study analyses self-insurance and saving decisions in a two-period model when the utility function depends on income and health. In this study, we consider an intertemporal and multi-dimensional cost–benefit structure of self-insurance and saving, unlike in the standard one-argument utility model. We show that the impacts of the changes in initial income and health on self-insurance and saving depend on whether an individual is correlation averse or not, the comparison between the absolute risk aversion and the absolute correlation aversion, and the comparison between the income effect and the substitution effect. We also show that self-insurance and saving can be either complements or substitutes.

Suggested Citation

  • Jimin Hong & Kyungsun Kim, 2021. "Self-insurance and saving under a two-argument utility framework," Journal of Economics, Springer, vol. 134(1), pages 73-94, September.
    • Handle: RePEc:kap:jeczfn:v:134:y:2021:i:1:d:10.1007_s00712-021-00738-8
    DOI: 10.1007/s00712-021-00738-8
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    More about this item

    Keywords

    Two-argument utility; Self-insurance; Saving; Correlation aversion; Risk aversion;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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