DP1423 Background Uncertainty and the Demand for Insurance Against Insurable Risks
|Author(s):||Luigi Guiso, Tullio Jappelli|
|Publication Date:||June 1996|
|Keyword(s):||Background Risk, Insurance, Prudence|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=1423|
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.