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On the role of market insurance in a dynamic model

  • Helge Braun

    ([1] IZA, P.O. Box 7240, 53072, Bonn, Germany, e-mail: koeniger@iza.org [2] University of British Columbia, #997-1873 East Mall, Vancouver, BC, Canada V6T 1Z1, e-mail: hbraun@interchange.ubc.ca)

  • Winfried Koeniger

    (IZA, P.O. Box 7240, 53072, Bonn, Germany, e-mail: koeniger@iza.org)

Durables like cars or houses are a substantial component in the balance sheets of households. These durables are exposed to risk and can be insured in the market. We build a dynamic model in which agents have three possibilities to cope with the risk exposure of the durable stock: (i) purchase of market insurance, (ii) buffer-stock saving of the riskless asset or (iii) adjustment of the durable stock. We calibrate our model to the US economy and find a small role for market insurance. The Geneva Risk and Insurance Review (2007) 32, 61–90. doi:10.1007/s10713-007-0001-5

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Article provided by Palgrave Macmillan in its journal The Geneva Risk And Insurance Review.

Volume (Year): 32 (2007)
Issue (Month): 1 (June)
Pages: 61-90

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Handle: RePEc:pal:genrir:v:32:y:2007:i:1:p:61-90
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