Background Uncertainty and the Demand for Insurance Against Insurable Risks
CEPR Discussion Paper Series No. 1423
Posted: 12 Mar 1997
Date Written: June 1996
Theory suggests that people facing higher uninsurable background risk buy more insurance against other risks that are insurable. This proposition is supported by Italian cross-sectional data. It is shown that the probability of purchasing casualty insurance increases with earnings uncertainty. This finding is consistent with consumer preferences being characterized by decreasing absolute prudence.
JEL Classification: D81
Suggested Citation: Suggested Citation