State-Dependent Preferences and Insurance Demand

16 Pages Posted: 3 Sep 2009 Last revised: 17 Dec 2009

See all articles by Robert Kremslehner

Robert Kremslehner

Vienna University of Economics and Business - Department of Accounting and Finance

Alexander Muermann

WU (Vienna University of Economics and Business); Vienna Graduate School of Finance (VGSF)

Date Written: December 11, 2009

Abstract

We compare the demand for insurance under state-dependent and state-independent preferences when allowing for positive premium loading and continuous state space. We show that the comparison does not only depend on how marginal utility of consumption changes across states - as it does under a fair premium - but also on how the absolute degree of risk aversion changes across states. If both marginal utility and absolute degree of risk aversion change monotonically across states, then a set of state-independent preferences can be specified such that unambiguous comparative results are derived.

Suggested Citation

Kremslehner, Robert and Muermann, Alexander, State-Dependent Preferences and Insurance Demand (December 11, 2009). Available at SSRN: https://ssrn.com/abstract=1466719 or http://dx.doi.org/10.2139/ssrn.1466719

Robert Kremslehner

Vienna University of Economics and Business - Department of Accounting and Finance ( email )

Nordbergstra├če 15, Bauteil B, 6. Stock
Wien 1090
Austria
+43 1 31336 4692 (Phone)
+43 1 31336 90 4692 (Fax)

Alexander Muermann (Contact Author)

WU (Vienna University of Economics and Business) ( email )

Welthandelsplatz 1
A - 1020 Wien
Austria
+43 1 31336 4948 (Phone)
+43 1 31336 90 4948 (Fax)

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
A - 1020 Wien
Austria

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