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Article: Precautionary Self-Insurance-cum-Protection

TitlePrecautionary Self-Insurance-cum-Protection
Authors
Issue Date2016
PublisherElsevier. The Journal's web site is located at http://www.elsevier.com/locate/ecolet
Citation
Economics Letters, 2016, v. 145, p. 152-156 How to Cite?
AbstractPrecautionary self-insurance-cum-protection (SICP) arises when an individual spends more on SICP when background risk is introduced. We develop a two-period model wherein additive/multiplicative background risk prevails in the second period. Using the theory of monotone comparative statics and risk apportionment, we derive necessary and sufficient conditions under which the individual spends more on SICP when the background risk deteriorates via higher-order stochastic dominance. Prudence is called for to create a precautionary motive that induces the individual to shift his wealth in a way to reduce the loss of expected utility caused by the addition of background risk, thereby giving rise to the precautionary SICP.
Persistent Identifierhttp://hdl.handle.net/10722/227460

 

DC FieldValueLanguage
dc.contributor.authorWong, KP-
dc.date.accessioned2016-07-18T09:10:51Z-
dc.date.available2016-07-18T09:10:51Z-
dc.date.issued2016-
dc.identifier.citationEconomics Letters, 2016, v. 145, p. 152-156-
dc.identifier.urihttp://hdl.handle.net/10722/227460-
dc.description.abstractPrecautionary self-insurance-cum-protection (SICP) arises when an individual spends more on SICP when background risk is introduced. We develop a two-period model wherein additive/multiplicative background risk prevails in the second period. Using the theory of monotone comparative statics and risk apportionment, we derive necessary and sufficient conditions under which the individual spends more on SICP when the background risk deteriorates via higher-order stochastic dominance. Prudence is called for to create a precautionary motive that induces the individual to shift his wealth in a way to reduce the loss of expected utility caused by the addition of background risk, thereby giving rise to the precautionary SICP.-
dc.languageeng-
dc.publisherElsevier. The Journal's web site is located at http://www.elsevier.com/locate/ecolet-
dc.relation.ispartofEconomics Letters-
dc.rights© <2016>. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/-
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.titlePrecautionary Self-Insurance-cum-Protection-
dc.typeArticle-
dc.identifier.emailWong, KP: kpwongc@hkucc.hku.hk-
dc.identifier.authorityWong, KP=rp01112-
dc.description.naturepostprint-
dc.identifier.doi10.1016/j.econlet.2016.06.006-
dc.identifier.hkuros258880-
dc.identifier.volume145-
dc.identifier.spage152-
dc.identifier.epage156-

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