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Background Uncertainty and the Demand for Insurance Against Insurable Risks

Author

Listed:
  • Luigi Guiso

    (CEPR and Ente “Luigi Einaudi” per gli Studi Monetari, Bancari e Finanziari, Via Due Macelli, University of Sassari, 73-00187 Rome, Italy.)

  • Tullio Jappelli

    (Dipartimento di Scienze Economiche, University of Salerno, 84084 Fisciano, Salerno, Italy and CEPR.)

Abstract

Theory suggests that people facing higher uninsurable background risk buy more insurance against other risks that are insurable. This proposition is supported by Italian cross-sectional data. It is shown that the probability of purchasing casualty insurance increases with earnings uncertainty. This finding is consistent with consumer preferences being characterized by decreasing absolute prudence. The Geneva Papers on Risk and Insurance Theory (1998) 23, 7–27. doi:10.1023/A:1008621712979

Suggested Citation

  • Luigi Guiso & Tullio Jappelli, 1998. "Background Uncertainty and the Demand for Insurance Against Insurable Risks," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 23(1), pages 7-27, June.
    • Handle: RePEc:pal:genrir:v:23:y:1998:i:1:p:7-27
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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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