ARTICLE
ABSTRACT
The article considers the impact of nonmonetary factors (health) on insurance and self-insurance (against material damage) decisions. Using a two-argument utility function, we prove that the health deterioration leads to increased demand for insurance if the decision-maker is cross-prudent in health and if wealth and health are complements. Those conditions are equivalent to positivity of second and third order degree cross-derivatives of the utility function. Second part of the article considers analogous effect of health deterioration on self-insurance. In this case the result depends additionally on effectivity of self-insurance as a function of the state of the world.
KEYWORDS
insurance, self-insurance, cross-prudence in health
REFERENCES
Bednarczyk T. H., (2011), Ekonomiczne i instytucjonalne czynniki rozwoju ubezpieczeń, Wiadomości Ubezpieczeniowe, 4, 85–106.
Briys E., Schlesinger H., (1990), Risk Aversion and the Propensities for Self-Insurance and Self-Protection, Southern Economic Journal, 57 (2), 458–467.
Courbage C., Rey B., (2007), Precautionary Saving in the Presence of Other Risks, Economic Theory 32, 417–424.
Crainich D., Eeckhoudt L., Le Courtois O., (2017), Health and Portfolio Choices: A Diffidence Approach, European Journal of Operational Research, 259 (1), 273–279.
Cutler D. M., Richardson E., (1997), Measuring the Health of the U.S. Population, Brookings Papers on Economic Activity. Microeconomics, 28, 217–282.
Denuit M. M., Eeckhoudt L., Menegatti M., (2011), Correlated Risks, Bivariate Utility and Optimal Choices, Economic Theory, 46, 39–54.
Diamond P., Stiglitz J., (1974), Increases in Risk and in Risk Aversion, Journal of Economic Theory 8, 337–360.
Dionne G., Eeckhoudt L., (1985), Self-Insurance, Self-Protection and Increasing Risk Aversion, Economics Letters, 17 (1–2), 39–42.
Dudziński P., (2014), Insurance and Self-Insurance – Substitutes or Complements?, Przegląd Statystyczny, 3, 307–315.
Edwards R., (2008), Health Risk and Portfolio Choice, Journal of Business and Economic Statistics, 26 (4), 472–485.
Eeckhoudt L., Rey B., Schlesinger H., (2007), A Good Sign For Multivariate Risk Taking, Management Science, 53, 117–124.
Ehrlich I., Becker G. S., (1972), Market Insurance, Self-Insurance, and Self-Protection, Journal of Political Economy, 80 (4), 623–648.
Finkelstein A., Luttmer E., Notowidigdo M., (2009), Approaches to Estimating the Health State Dependance of the Utility Function, American Economic Review, Papers and Proceedings, 99 (2), 116–21.
Finkelstein A., Luttmer E., Notowidigdo M., (2013), What Good Is Wealth Without Health? The Effect of Health on the Marginal Utility of Consumption, Journal of the European Economic Association, 11 (1), 221–258.
Heilpern S., (2001), Podejmowanie decyzji w warunkach niepewności i ryzyka, Wydawnictwo Akademii Ekonomicznej we Wrocławiu, Wrocław.
Lee K., (2005), Wealth Effects on Self-Insurance and Self-Protection Against Monetary and Nonmonetary Losses, The Geneva Risk and Insurance Review, 30, 147–159.
Lee K., (2010a), Risk Aversion and Self-Insurance, Journal of Economics, 101, 277–282.
Lee K., (2010b), Wealth Effects on Self-Insurance, The Geneva Risk and Insurance Review, 35, 160-171.
Lillard L. A., Weiss Y., (1997), Uncertain Health and Survival: Effects of End-of-Life Consumption, Journal of Business and Economic Statistics, 15 (2), 254-268.
Mace S., (2015), Saving and Perceived Health Risks, Review of Economics of the Household, 13 (1), 37–52.
Menegatti M., (2009), Optimal Prevention and Prudence in a Two-period Model, Mathematical Social Sciences, 58, 393–397.
Outreville J. F., (2011), The Relationship Between Insurance Growth and Economic Development: 80 Empirical Papers for a Review of the Literature, ICER Working Paper 12–2011.
Outreville J. F., (2013), The Relationship Between Insurance and Economic Development: 85 Empirical Papers for a Review of the Literature, Risk Management and Insurance Review, 16, 71–122.
Rey B., (2003), A Note on Optimal Insurance in the Presence of a Nonpecuniary Background Risk, Theory and Decision, 54, 73–83.
Schlesinger H., (2000), The Theory of Insurance Demand, w: Dionne G., (red.), Handbook of Insurance, Boston, Kluwer Academic Publishers, 131–151.
Sloan F., Viscusi K., Chesson H., Conover C., Whetten-Goldstein K., (1998), Alternative Approaches to Valuing Intangible Health Losses: The Evidence for Multiple Sclerosis, Journal of Health Economics, 17 (4), 475–497.
Tengstam S., (2014), Disability and Marginal Utility of Income: Evidence From Hypothetical Choices, Health Economics, 23 (3), 268–82.
Viscusi K., Evans W., (1990), Utility Functions That Depend on Health Status: Estimates and Economic Implications, American Economic Review, 80 (3), 353–374.
