Wealth effects on self-insurance and self-protection against monetary and nonmonetary losses

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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. © 2005 The Geneva Association.

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Lee, K. (2005). Wealth effects on self-insurance and self-protection against monetary and nonmonetary losses. GENEVA Risk and Insurance Review, 30(2), 147–159. https://doi.org/10.1007/s10713-005-4676-1

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