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Self-insurance, self-protection, and increased risk aversion: An intertemporal reinvestigation

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  • Hofmann, Annette
  • Peter, Richard

Abstract

This paper studies the effect of increased risk aversion on self-insurance and self-protection in a two-period framework. Here risk management incentives and consumption smoothing incentives are traded off, and the monotonic relationship between self-insurance and risk aversion may no longer hold as more risk-averse agents cannot always afford spending more on self-insurance. A very similar relationship holds for self-protection making self-insurance and self-protection much more alike in a two-period model. We also extend the model to a joint analysis of self-insurance/self-protection and saving decisions.

Suggested Citation

  • Hofmann, Annette & Peter, Richard, 2012. "Self-insurance, self-protection, and increased risk aversion: An intertemporal reinvestigation," Working Papers on Risk and Insurance 26, University of Hamburg, Institute for Risk and Insurance.
    • Handle: RePEc:zbw:hzvwps:26
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    References listed on IDEAS

    as
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    6. Louis Eeckhoudt & Christian Gollier, 2005. "The impact of prudence on optimal prevention," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 26(4), pages 989-994, November.
    Full references (including those not matched with items on IDEAS)

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