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Wealth Effects on Self-Insurance and Self-Protection against Monetary and Nonmonetary Losses

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  • Kangoh Lee

    (Department of Economics, Towson University, Towson, Maryland 21252, e-mail: klee@towson.edu)

Abstract

This paper considers the wealth effects on self-insurance and self-protection activities against possible losses of monetary wealth such as properties and nonmonetary wealth such as health. Increased initial income or monetary wealth decreases the demand for self-insurance against monetary wealth loss under the decreasing absolute risk aversion assumption, and has an ambiguous effect on self-protection. However, increased initial monetary wealth increases both self-insurance and self-protection against health loss, explaining empirical trends, if wealth and health are complements. When multiple self-insurance activities against both types of losses are considered, the effect of an increase in initial monetary wealth on self-insurance against health loss remains the same, but the effect on self-insurance against wealth loss depends on the preferences. The Geneva Risk and Insurance Review (2005) 30, 147–159. doi:10.1007/s10713-005-4676-1

Suggested Citation

  • Kangoh Lee, 2005. "Wealth Effects on Self-Insurance and Self-Protection against Monetary and Nonmonetary Losses," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 30(2), pages 147-159, December.
  • Handle: RePEc:pal:genrir:v:30:y:2005:i:2:p:147-159
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    Citations

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    Cited by:

    1. Dari-Mattiacci, Giuseppe & Langlais, Eric, 2012. "Social Wealth and Optimal Care," International Review of Law and Economics, Elsevier, vol. 32(2), pages 271-284.
    2. Burren, Daniel, 2013. "Insurance demand and welfare-maximizing risk capital—Some hints for the regulator in the case of exponential preferences and exponential claims," Insurance: Mathematics and Economics, Elsevier, vol. 53(3), pages 551-568.
    3. Courbage, Christophe & Rey, Béatrice & Treich, Nicolas, 2013. "Prevention and precaution," TSE Working Papers 13-445, Toulouse School of Economics (TSE).
    4. Annette Hofmann, 2007. "Internalizing externalities of loss prevention through insurance monopoly: an analysis of interdependent risks," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 32(1), pages 91-111, June.

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