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Changes in Background Risk and the Demand for Insurance

Author

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  • Donald J. Meyer

    (Department of Economics, Western Michigan University, Kalamazoo MI 49008.)

  • Jack Meyer

    (Department of Economics, Michigan State University, East Lansing MI 48824.)

Abstract

The demand for insurance against loss from a particular risky asset is likely to depend on other risks the decision-maker faces. For independently distributed other risks, referred to as background risk, Eeckhoudt and Kimball [1992] determine the effect on insurance demand of introducing background risk. Recently, Eeckhoudt, Gollier, and Schlesinger [1996] determine conditions on preferences such that first- and second-degree stochastic deteriorations in background risk lead to a decrease in the decision-maker's willingness to accept other risks. These results, although formulated in a general decision model, also apply to insurance demand. This article continues analysis of this question by determining the effect on insurance demand of several other general changes in background risk. The Geneva Papers on Risk and Insurance Theory (1998) 23, 29–40. doi:10.1023/A:1008625829817

Suggested Citation

  • Donald J. Meyer & Jack Meyer, 1998. "Changes in Background Risk and the Demand for Insurance," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 23(1), pages 29-40, June.
    • Handle: RePEc:pal:genrir:v:23:y:1998:i:1:p:29-40
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    Citations

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    Cited by:

    1. Donald Meyer & Jack Meyer, 2010. "Excluded losses and the demand for insurance," Journal of Risk and Uncertainty, Springer, vol. 41(1), pages 1-18, August.
    2. Mickael Beaud & Marc Willinger, 2015. "Are People Risk Vulnerable?," Management Science, INFORMS, vol. 61(3), pages 624-636, March.
    3. Henri Loubergé, 1998. "Risk and Insurance Economics 25 Years After," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 23(4), pages 540-567, October.
    4. Chi, Yichun & Liu, Fangda, 2017. "Optimal insurance design in the presence of exclusion clauses," Insurance: Mathematics and Economics, Elsevier, vol. 76(C), pages 185-195.
    5. Franke, Günter & Stapleton, Richard C. & Subrahmanyam, Marti G., 2005. "Incremental risk vulnerability," CoFE Discussion Papers 05/08, University of Konstanz, Center of Finance and Econometrics (CoFE).
    6. Lu, Zhiyi & Meng, Shengwang & Liu, Leping & Han, Ziqi, 2018. "Optimal insurance design under background risk with dependence," Insurance: Mathematics and Economics, Elsevier, vol. 80(C), pages 15-28.
    7. M M Segovia-Gonzalez & I Contreras & C Mar-Molinero, 2009. "A DEA analysis of risk, cost, and revenues in insurance," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 60(11), pages 1483-1494, November.

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