Book chapter
The Self-Protection Problem
Handbook of Insurance, pp.55-82
Springer Nature Switzerland, Third edition
2025
DOI: 10.1007/978-3-031-69674-9_3
Abstract
This chapter surveys the technical aspects of the self-protection problem in the expected utility model. Self-protection is a costly investment to reduce the probability of loss. Even in the simplest model with a binary risk of loss, the objective function is not necessarily concave in the level of self-protection, and deriving clean comparative statics has proven notoriously difficult. This chapter discusses the regularity of the self-protection problem, the trade-off between risk aversion and downside risk aversion, and the role of probability thresholds. It presents results about the decision to engage in self-protection (i.e., the extensive margin) and the optimal level of self-protection (i.e., the intensive margin). Recent intertemporal extensions to two periods are also discussed with a focus on the role of saving as a substitute for self-protection.
Details
- Title: Subtitle
- The Self-Protection Problem
- Creators
- Richard Peter
- Contributors
- Georges Dionne (Editor)
- Resource Type
- Book chapter
- Publication Details
- Handbook of Insurance, pp.55-82
- Edition
- Third edition
- Publisher
- Springer Nature Switzerland; Cham
- DOI
- 10.1007/978-3-031-69674-9_3
- Language
- English
- Date published
- 2025
- Academic Unit
- Economics; Finance
- Record Identifier
- 9984795472702771
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