Insuring replaceable possessions

De Meza, David and Reyniers, Diane J. (2023) Insuring replaceable possessions. Economica, 90 (357). 271 - 284. ISSN 0013-0427

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Abstract

Equivalencebetween insuring income and what is bought with income is commonly assumed. It seems to be implicitly held that uninsured but replaceable goods will always be replaced if they fail. This does not follow. People may have difficulty coming up with the money to pay for a replacement out of pocket. Also, the income effect of a loss may mean that replacement is not worthwhile. We show that as a result, equivalence breaks down. Both theory and evidence are provided. Implications include a tendency of empirical papers to overestimate risk aversion, a reason why demand for insurance increases with income, and the mistaken attribution of preference inconsistency.

Item Type:	Article
Official URL:	https://onlinelibrary.wiley.com/journal/14680335
Additional Information:	© 2022 The Authors
Divisions:	Management
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance
Date Deposited:	16 Nov 2022 11:12
Last Modified:	15 Apr 2024 19:21
URI:	http://eprints.lse.ac.uk/id/eprint/117349

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