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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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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Thomas Eichner & Andreas Wagener, 2002. "Increases in Risk and the Welfare State," CESifo Working Paper Series 685, CESifo Group Munich.
    2. Grande, Giuseppe & Ventura, Luigi, 2002. "Labor income and risky assets under market incompleteness: Evidence from Italian data," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 597-620, March.
    3. Théodora Dupont-Courtade, 2012. "Insurance demand under ambiguity and conflict for extreme risks: Evidence from a large representative survey," Documents de travail du Centre d'Economie de la Sorbonne 12020, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    4. Guiso, Luigi & Sodini, Paolo, 2013. "Household Finance: An Emerging Field," Handbook of the Economics of Finance, Elsevier.
    5. Giovanni Millo & Gaetano Carmeci, 2011. "Non-life insurance consumption in Italy: a sub-regional panel data analysis," Journal of Geographical Systems, Springer, vol. 13(3), pages 273-298, September.
    6. Luigi Guiso & Monica Paiella, 2008. "Risk Aversion, Wealth, and Background Risk," Journal of the European Economic Association, MIT Press, vol. 6(6), pages 1109-1150, December.
    7. Cavatorta, Elisa & Pieroni, Luca, 2013. "Background risk of food insecurity and insurance behaviour: Evidence from the West Bank," Food Policy, Elsevier, vol. 43(C), pages 278-290.
    8. Eichner, Thomas & Wagener, Andreas, 2012. "Tempering effects of (dependent) background risks: A mean-variance analysis of portfolio selection," Journal of Mathematical Economics, Elsevier, vol. 48(6), pages 422-430.
    9. Letendre, Marc-Andre & Smith, Gregor W., 2001. "Precautionary saving and portfolio allocation: DP by GMM," Journal of Monetary Economics, Elsevier, vol. 48(1), pages 197-215, August.
    10. Cavatorta, Elisa & Pieroni, Luca, 2010. "A Competing Risk Model for Health and Food Insecurity in the West Bank," MPRA Paper 25555, University Library of Munich, Germany.
    11. Ortega, Eva-María & Escudero, Laureano F., 2010. "On expected utility for financial insurance portfolios with stochastic dependencies," European Journal of Operational Research, Elsevier, vol. 200(1), pages 181-186, January.
    12. repec:eee:insuma:v:80:y:2018:i:c:p:15-28 is not listed on IDEAS
    13. Craig E. Landry & Mohammad R. Jahan‐Parvar, 2011. "Flood Insurance Coverage in the Coastal Zone," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 78(2), pages 361-388, June.
    14. Koeniger, Winfried, 2001. "Labor and Financial Market Interactions: The Case of Labor Income Risk and Car Insurance in the UK 1969-95," IZA Discussion Papers 240, Institute for the Study of Labor (IZA).
    15. repec:eee:insuma:v:76:y:2017:i:c:p:185-195 is not listed on IDEAS

    More about this item

    JEL classification:

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

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