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Market Insurance, Self-Insurance, and Self-Protection

27 Pages Posted: 7 Feb 2007  

Isaac Ehrlich

State University of New York at Buffalo - Department of Economics; National Bureau of Economic Research (NBER); University of Chicago - University of Chicago Press; Institute for the Study of Labor (IZA)

Gary S. Becker

University of Chicago - Department of Economics; University of Chicago - Booth School of Business

Abstract

The article develops a theory of demand for insurance that emphasizes the interaction between market insurance, self-insurance, and self- rotection. The effects of changes in prices, income, and other variables on the demand for these alternative forms of insurance are analyzed using the state preference approach to behavior under uncertainty. Market insurance and self-insurance are shown to be substitutes, but market insurance and self-protection can be complements. The analysis challenges the notion that moral hazard is an inevitable consequence of market insurance, by showing that under certain conditions the latter may lead to a reduction in the probabilities of hazardous events.

Suggested Citation

Ehrlich, Isaac and Becker, Gary S., Market Insurance, Self-Insurance, and Self-Protection. Journal of Political Economy, Vol. 80, No. 4, pp. 623-648, July-August 1972. Available at SSRN: https://ssrn.com/abstract=961496

Isaac Ehrlich (Contact Author)

State University of New York at Buffalo - Department of Economics ( email )

415 Fronczak Hall
Buffalo, NY 14260
United States
716-645 2121 (Phone)
716-645 2127 (Fax)

HOME PAGE: http://economics.buffalo.edu/people/ehrlich/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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University of Chicago - University of Chicago Press ( email )

1427 E. 60th Street
Chicago, IL 60637
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Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Gary S. Becker

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States

University of Chicago - Booth School of Business

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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