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Background Uncertainty and the Demand for Insurance Against Insurable Risks

  • 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.)

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

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Article provided by Palgrave Macmillan & International Association for the Study of Insurance Economics (The Geneva Association) in its journal The Geneva Papers on Risk and Insurance Theory.

Volume (Year): 23 (1998)
Issue (Month): 1 (June)
Pages: 7-27

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Handle: RePEc:pal:genrir:v:23:y:1998:i:1:p:7-27
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