Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/26305
Authors: 
Chang, Fwu-Ranq
Year of Publication: 
2008
Series/Report no.: 
CESifo working paper 2260
Abstract: 
This paper studies the interdependence between property insurance and portfolio selection. The insurance premium of property loss is shown to play the role of subsistence consumption in the analysis. Then, “security” becomes a necessity good and an increase in any insurance parameter would make the investor more “conservative.” The effect of a stock market parameter on the marginal propensity to insure is shown to be opposite that on the marginal propensity to consume. Consequently, an increase in volatility would encourage those with a greater-than-unity relative risk aversion to purchase more insurance at the expense of current consumption.
Subjects: 
insurance premium
subsistence consumption
portfolio substitution
optimal saving under uncertainty
JEL: 
G11
G22
E21
Document Type: 
Working Paper

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