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On the substitution between saving and prevention

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  • M. Menegatti
  • F. Rebessi

Abstract

This work makes a joint analysis of prevention and saving decisions. First we determine the optimal levels of the two variables and we analyze substitution between them. Second we provide some comparative statics results in order to determine the effects on optimal saving and prevention of changes in exogenous present and future wealth and in possible future loss. Finally we introduce insurance into the model and we extend the separation result, derived in the literature which studies the substitution between insurance and saving, to the case where prevention is considered too.

Suggested Citation

  • M. Menegatti & F. Rebessi, 2010. "On the substitution between saving and prevention," Economics Department Working Papers 2010-EP03, Department of Economics, Parma University (Italy).
    • Handle: RePEc:par:dipeco:2010-ep03
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    References listed on IDEAS

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    1. Dionne, Georges & Eeckhoudt, Louis, 1984. "Insurance and saving: some further results," Insurance: Mathematics and Economics, Elsevier, vol. 3(2), pages 101-110, April.
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    9. Hall, Robert E, 1988. "Intertemporal Substitution in Consumption," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 339-357, April.
    10. Menegatti, Mario, 2001. "On the Conditions for Precautionary Saving," Journal of Economic Theory, Elsevier, vol. 98(1), pages 189-193, May.
    11. Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-648, July-Aug..
    12. Dionne, Georges & Li, Jingyuan, 2011. "The impact of prudence on optimal prevention revisited," Economics Letters, Elsevier, vol. 113(2), pages 147-149.
    13. Hayne E. Leland, 1968. "Saving and Uncertainty: The Precautionary Demand for Saving," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 82(3), pages 465-473.
    14. Louis Eeckhoudt & Christian Gollier, 2005. "The impact of prudence on optimal prevention," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 26(4), pages 989-994, November.
    15. Rothschild, Michael & Stiglitz, Joseph E., 1971. "Increasing risk II: Its economic consequences," Journal of Economic Theory, Elsevier, vol. 3(1), pages 66-84, March.
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    Cited by:

    1. Desu Liu & Mario Menegatti, 2019. "Optimal saving and health prevention," Journal of Economics, Springer, vol. 128(2), pages 177-191, October.
    2. Tobias Huber, 2022. "Comparative risk aversion in two periods: An application to self‐insurance and self‐protection," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 89(1), pages 97-130, March.
    3. Christoph Heinzel & Richard Peter, 2021. "Precautionary motives with multiple instruments [Motifs de précaution en cas de multiples instruments]," Working Papers hal-03484875, HAL.
    4. Donatella Baiardi & Marco Magnani & Mario Menegatti, 2020. "The theory of precautionary saving: an overview of recent developments," Review of Economics of the Household, Springer, vol. 18(2), pages 513-542, June.
    5. Peter, Richard, 2017. "Optimal self-protection in two periods: On the role of endogenous saving," Journal of Economic Behavior & Organization, Elsevier, vol. 137(C), pages 19-36.
    6. Mario Menegatti, 2018. "Prudence and Different Kinds of Prevention," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 44(2), pages 273-285, April.
    7. Hofmann, Annette & Peter, Richard, 2012. "Self-insurance, self-protection, and increased risk aversion: An intertemporal reinvestigation," Working Papers on Risk and Insurance 26, University of Hamburg, Institute for Risk and Insurance.
    8. Jimin Hong & Kyungsun Kim, 2021. "Self-insurance and saving under a two-argument utility framework," Journal of Economics, Springer, vol. 134(1), pages 73-94, September.
    9. Heinzel Christoph & Richard Peter, 2021. "Precautionary motives with multiple instruments," Working Papers SMART 21-09, INRAE UMR SMART.
    10. Richard Peter, 2024. "The economics of self-protection," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 49(1), pages 6-35, March.
    11. Mario Menegatti, 2012. "New results on optimal prevention of risk averse agents," Economics Bulletin, AccessEcon, vol. 32(3), pages 2166-2173.
    12. Heinzel, Christoph & Peter, Richard, 2021. "Precautionary motives with multiple instruments," Working Papers 316521, Institut National de la recherche Agronomique (INRA), Departement Sciences Sociales, Agriculture et Alimentation, Espace et Environnement (SAE2).
    13. Richard Peter, 2021. "Who should exert more effort? Risk aversion, downside risk aversion and optimal prevention," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(4), pages 1259-1281, June.
    14. Mario Menegatti, 2021. "Subsidizing risk prevention," Journal of Economics, Springer, vol. 134(2), pages 175-193, October.
    15. Thomas Mayrhofer & Hendrik Schmitz, 2020. "Prudence and prevention - Empirical evidence," Working Papers CIE 134, Paderborn University, CIE Center for International Economics.
    16. Hun Seog, S. & Hong, Jimin, 2022. "Market insurance and endogenous saving with multiple loss states," The North American Journal of Economics and Finance, Elsevier, vol. 61(C).
    17. Richard Peter & Sebastian Soika & Petra Steinorth, 2016. "Health Insurance, Health Savings Accounts and Healthcare Utilization," Health Economics, John Wiley & Sons, Ltd., vol. 25(3), pages 357-371, March.
    18. Heinzel, Christoph & Peter, Richard, 2023. "Precaution with multiple instruments: The importance of substitution effects," Journal of Economic Behavior & Organization, Elsevier, vol. 207(C), pages 392-412.
    19. Annette Hofmann & Richard Peter, 2016. "Self-Insurance, Self-Protection, and Saving: On Consumption Smoothing and Risk Management," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(3), pages 719-734, September.
    20. Christophe Courbage & Henri Loubergé & Richard Peter, 2017. "Optimal Prevention for Multiple Risks," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 84(3), pages 899-922, September.
    21. Mario Menegatti, 2021. "Risk aversion in two-period rent-seeking games," Public Choice, Springer, vol. 188(1), pages 269-287, July.
    22. Mario Menegatti, 2014. "Optimal choice on prevention and cure: a new economic analysis," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 15(4), pages 363-372, May.

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    More about this item

    Keywords

    Prevention; Saving; Insurance;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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