Self-insurance and saving under a two-argument utility framework

Jimin Hong () and Kyungsun Kim ()
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Jimin Hong: Soongsil University
Kyungsun Kim: Seoul National University Business School

Journal of Economics, 2021, vol. 134, issue 1, No 4, 73-94

Abstract: Abstract This study analyses self-insurance and saving decisions in a two-period model when the utility function depends on income and health. In this study, we consider an intertemporal and multi-dimensional cost–benefit structure of self-insurance and saving, unlike in the standard one-argument utility model. We show that the impacts of the changes in initial income and health on self-insurance and saving depend on whether an individual is correlation averse or not, the comparison between the absolute risk aversion and the absolute correlation aversion, and the comparison between the income effect and the substitution effect. We also show that self-insurance and saving can be either complements or substitutes.

Keywords: Two-argument utility; Self-insurance; Saving; Correlation aversion; Risk aversion (search for similar items in EconPapers)
JEL-codes: D81 G22 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:134:y:2021:i:1:d:10.1007_s00712-021-00738-8

DOI: 10.1007/s00712-021-00738-8

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