On the role of market insurance in a dynamic model

Helge Braun and Winfried Koeniger
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Helge Braun: [1] IZA, P.O. Box 7240, 53072, Bonn, Germany, e-mail: koeniger@iza.org [2] University of British Columbia, #997-1873 East Mall, Vancouver, BC, Canada V6T 1Z1, e-mail: hbraun@interchange.ubc.ca

The Geneva Risk and Insurance Review, 2007, vol. 32, issue 1, 90 pages

Abstract: Durables like cars or houses are a substantial component in the balance sheets of households. These durables are exposed to risk and can be insured in the market. We build a dynamic model in which agents have three possibilities to cope with the risk exposure of the durable stock: (i) purchase of market insurance, (ii) buffer-stock saving of the riskless asset or (iii) adjustment of the durable stock. We calibrate our model to the US economy and find a small role for market insurance. The Geneva Risk and Insurance Review (2007) 32, 61–90. doi:10.1007/s10713-007-0001-5

Date: 2007
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