Journal article
Risk aversion, prudence and self-insurance-cum-protection
Economics letters, Vol.264, 112950
05/2026
DOI: 10.1016/j.econlet.2026.112950
Abstract
Self-insurance-cum-protection (SICP) reduces both the probability and the severity of loss. In an expected utility model with a binary risk of loss, we derive conditions under which the SICP problem is quasiconcave and admits an interior maximizer. We then characterize how increased risk aversion affects optimal SICP. Prudence reduces optimal SICP, whereas the effect of risk aversion depends on a benchmark-specific probability threshold. Above this threshold, risk aversion and prudence reinforce each other; below it, they operate in opposite directions. This broadens the scope of the negative prudence effect from pure self-protection to SICP.
Details
- Title: Subtitle
- Risk aversion, prudence and self-insurance-cum-protection
- Creators
- Richard Peter - University of IowaJian Zhang - Le Moyne College
- Resource Type
- Journal article
- Publication Details
- Economics letters, Vol.264, 112950
- DOI
- 10.1016/j.econlet.2026.112950
- ISSN
- 0165-1765
- eISSN
- 1873-7374
- Publisher
- Elsevier
- Language
- English
- Date published
- 05/2026
- Academic Unit
- Economics; Finance
- Record Identifier
- 9985149523002771
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