IDEAS home Printed from https://ideas.repec.org/a/bpj/apjrin/v14y2020i1p10n6.html
   My bibliography  Save this article

On Three Standard Results in the Theory of Insurance Demand

Author

Listed:
  • Hong Liang

    (Department of Mathematics, Robert Morris University, 6001 University Boulevard, Moon Township, PA 15108, USA)

Abstract

This article re-examines three standard results in the theory of insurance demand: (i) full coverage with a fair premium and partial coverage with an unfair premium; (ii) insurance is an inferior good under decreasing absolute risk aversion (DARA) and (iii) insurance may be a Giffen good under DARA. It has been shown recently that (i) holds for the class of insurance policies in which maximum coverage fully covers the potential loss. We show that whether (i) holds beyond this class of policies is indeterminate. In addition, we employ a unified framework to investigate the effects of changes in initial wealth and price. In particular, we show that both (ii) and (iii) hold for a certain class of insurance policies which include all commonly-used types of policies. The result also provides a unified treatment of several results in the extant literature.

Suggested Citation

  • Hong Liang, 2020. "On Three Standard Results in the Theory of Insurance Demand," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 14(1), pages 1-10, January.
  • Handle: RePEc:bpj:apjrin:v:14:y:2020:i:1:p:10:n:6
    DOI: 10.1515/apjri-2018-0037
    as

    Download full text from publisher

    File URL: https://doi.org/10.1515/apjri-2018-0037
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.

    File URL: https://libkey.io/10.1515/apjri-2018-0037?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Georges Dionne (ed.), 2013. "Handbook of Insurance," Springer Books, Springer, edition 2, number 978-1-4614-0155-1, June.
    2. J. David Cummins & Olivier Mahul, 2004. "The demand for insurance with an upper limit on coverage," Post-Print hal-01952122, HAL.
    3. Harris Schlesinger, 2006. "Mossin's Theorem for Upper‐Limit Insurance Policies," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 73(2), pages 297-301, June.
    4. Briys, Eric & Dionne, Georges & Eeckhoudt, Louis, 1989. "More on Insurance as a Giffen Good," Journal of Risk and Uncertainty, Springer, vol. 2(4), pages 415-420, December.
    5. J. David Cummins & Olivier Mahul, 2004. "The Demand for Insurance With an Upper Limit on Coverage," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 71(2), pages 253-264, June.
    6. Doherty, Neil A & Schlesinger, Harris, 1983. "Optimal Insurance in Incomplete Markets," Journal of Political Economy, University of Chicago Press, vol. 91(6), pages 1045-1054, December.
    7. Chi, Yichun & Wei, Wei, 2018. "Optimum Insurance Contracts With Background Risk And Higher-Order Risk Attitudes," ASTIN Bulletin, Cambridge University Press, vol. 48(3), pages 1025-1047, September.
    8. Lu, ZhiYi & Liu, LePing & Zhang, JianYu & Meng, LiLi, 2012. "Optimal insurance under multiple sources of risk with positive dependence," Insurance: Mathematics and Economics, Elsevier, vol. 51(2), pages 462-471.
    9. Liang Hong, 2019. "Remarks on the Mossin Theorem," North American Actuarial Journal, Taylor & Francis Journals, vol. 23(1), pages 1-10, January.
    10. Doherty, Neil A & Schlesinger, Harris, 1983. "The Optimal Deductible for an Insurance Policy When Initial Wealth Is Random," The Journal of Business, University of Chicago Press, vol. 56(4), pages 555-565, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yichun Chi & Wei Wei, 2020. "Optimal insurance with background risk: An analysis of general dependence structures," Finance and Stochastics, Springer, vol. 24(4), pages 903-937, October.
    2. Lu, Zhiyi & Meng, Shengwang & Liu, Leping & Han, Ziqi, 2018. "Optimal insurance design under background risk with dependence," Insurance: Mathematics and Economics, Elsevier, vol. 80(C), pages 15-28.
    3. Fujii, Yoichiro & Okura, Mahito & Osaki, Yusuke, 2021. "Is insurance normal or inferior? -A regret theoretical approach-," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).
    4. Eling, Martin & Wirfs, Jan Hendrik, 2016. "Cyber Risk: Too Big to Insure? Risk Transfer Options for a mercurial risk class," I.VW HSG Schriftenreihe, University of St.Gallen, Institute of Insurance Economics (I.VW-HSG), volume 59, number 59.
    5. Dionne, Georges & Harrington, Scott, 2017. "Insurance and Insurance Markets," Working Papers 17-2, HEC Montreal, Canada Research Chair in Risk Management.
    6. Henri Loubergé, 1998. "Risk and Insurance Economics 25 Years After," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 23(4), pages 540-567, October.
    7. Richard Watt & Henri Loubergé, 2005. "On the Demand for Budget Constrained Insurance," FAME Research Paper Series rp137, International Center for Financial Asset Management and Engineering.
    8. Zhou, Chunyang & Wu, Wenfeng & Wu, Chongfeng, 2010. "Optimal insurance in the presence of insurer's loss limit," Insurance: Mathematics and Economics, Elsevier, vol. 46(2), pages 300-307, April.
    9. Yichun Chi & Xun Yu Zhou & Sheng Chao Zhuang, 2020. "Variance Contracts," Papers 2008.07103, arXiv.org.
    10. Corina Birghila & Tim J. Boonen & Mario Ghossoub, 2020. "Optimal Insurance under Maxmin Expected Utility," Papers 2010.07383, arXiv.org.
    11. Birghila, Corina & Pflug, Georg Ch., 2019. "Optimal XL-insurance under Wasserstein-type ambiguity," Insurance: Mathematics and Economics, Elsevier, vol. 88(C), pages 30-43.
    12. Luigi Guiso & Tullio Jappelli, 1998. "Background Uncertainty and the Demand for Insurance Against Insurable Risks," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 23(1), pages 7-27, June.
    13. Lu, ZhiYi & Meng, LiLi & Wang, Yujin & Shen, Qingjie, 2016. "Optimal reinsurance under VaR and TVaR risk measures in the presence of reinsurer’s risk limit," Insurance: Mathematics and Economics, Elsevier, vol. 68(C), pages 92-100.
    14. Arthur Hau, 1999. "A Note on Insurance Coverage in Incomplete Markets," Southern Economic Journal, John Wiley & Sons, vol. 66(2), pages 433-441, October.
    15. Neil A. Doherty & Christian Laux & Alexander Muermann, 2015. "Insuring Nonverifiable Losses," Review of Finance, European Finance Association, vol. 19(1), pages 283-316.
    16. Mohamed Anouar Razgallah, 2005. "The demand for health insurance in a multirisk context," Post-Print halshs-00180048, HAL.
    17. Chi, Yichun & Zhuang, Sheng Chao, 2022. "Regret-based optimal insurance design," Insurance: Mathematics and Economics, Elsevier, vol. 102(C), pages 22-41.
    18. Carole Bernard & Weidong Tian, 2010. "Insurance Market Effects of Risk Management Metrics," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 35(1), pages 47-80, June.
    19. Dana, Rose-Anne & Scarsini, Marco, 2007. "Optimal risk sharing with background risk," Journal of Economic Theory, Elsevier, vol. 133(1), pages 152-176, March.
    20. Christopher Gaffney & Adi Ben-Israel, 2016. "A simple insurance model: optimal coverage and deductible," Annals of Operations Research, Springer, vol. 237(1), pages 263-279, February.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:apjrin:v:14:y:2020:i:1:p:10:n:6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyter.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.