Wealth Effects on Self-Insurance and Self-Protection against Monetary and Nonmonetary Losses |
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Authors: | Kangoh Lee |
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Institution: | (1) Department of Economics, Towson University, Towson, Maryland, 21252 |
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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.
JEL Classification No: D81, G22 |
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Keywords: | self-insurance self-protection wealth loss health loss wealth effects |
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