Impact of background risk on self-insurance against health loss
This paper introduces two-period model for optimal self-insurance against health loss in the future in the case when there are two independent sources of risk, one of them is non-insurable. We prove that the impact of introduction of background risk on self- insurance depends on the timing. If backg...
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| Format: | Article |
| Language: | English |
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University of Gdansk
2013-12-01
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| Series: | Contemporary Economy |
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| Online Access: | http://www.wspolczesnagospodarka.pl/?p=674 |
| Summary: | This paper introduces two-period model for optimal self-insurance against health loss in the future in the case when there are two independent sources of risk, one of them is non-insurable. We prove that the impact of introduction of background risk on self- insurance depends on the timing. If background risk is contemporaneous with decision- making then it reduces demand for self-insurance; if background risk concerns the future then it increases demand for self-insurance. The result depends on signs of the third partial derivatives of the bivariate utility function. We also provide economic interpretation of the result. |
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| ISSN: | 2082-677X 2082-677X |