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

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.

Impact of Outcome Ambiguity on Self‐insurance and Self‐protection: Experimental Evidence

“…Although there are many theoretical works about this issue (e.g., Immordino, ; Quiggin, ; Lee, ; Lohse et al ., ), we are aware of only two experimental studies that compared the individual valuations of SISP. Shogren (), for instance, concluded that a risk‐averse or risk‐neutral individual would value self‐protection more highly than self‐insurance.…”

“…Moreover, in many theoretical studies, a more risk-averse person was found to always invest more in self-insurance, but not necessarily more in self-protection (Dionne and Eeckhoudt, 1985;Briys and Schlesinger, 1990;Briys et al, 1991;Alary et al, 2013). As about the ambiguity effect on SISP, Snow (2011) shows that ambiguity averse individual value both self-insurance and selfprotection higher than the individuals that are not ambiguity averse, in addition, the valuation increases as the ambiguity aversion increases.Although there are many theoretical works about this issue (e.g., Immordino, 2000;Quiggin, 2002;Lee, 2005;Lohse et al, 2007), we are aware of only two experimental studies that compared the individual valuations of SISP. Shogren (1990), for instance, concluded that a riskaverse or risk-neutral individual would value self-protection more highly than self-insurance.…”

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“…Innym byłoby rozważenie przypadku wielu stanów świata, gdyż istniejąca do tej pory analiza teoretyczna ogranicza się tylko do dwóch stanów. Wymaga to jednak poważnego uogólnienia modelu, zaś niektóre wyniki mogą się okazać jakościowo odmienne od dotychczasowych, jak to pokazał Lee (2005) w pracy na temat efektu dochodowego w przypadku samoubezpieczenia (SI). W niniejszej pracy zajmujemy się problemem wyboru prawnika poprzez zastosowanie modelu stanowiącego połączenie samoubezpieczenia i prewencji (SICP) w sytuacji możliwości zwrotu kosztów w razie wygranej sprawy w sądzie.…”

Wealth Effects on Self-insurance

“…Sweeney and Beard (1992) and Lee (2005) analyze the wealth effects on self-protection, and on self-insurance, respectively, in a two-state model. But the wealth effects on self-insurance with multiple states have not been studied.…”