On the Impact of Insurance on Households Susceptible to Random Proportional Losses: An Analysis of Poverty Trapping

Kira Henshaw, Jorge Ramirez, Jos\'e Miguel Flores-Contr\'o, Sooie-Hoe Loke, Enrique A. Thomann and Corina Constantinescu

Papers from arXiv.org

Abstract: The trapping probability is studied for households' capital assuming that losses are proportional to the accumulated capital. We consider households without insurance and those purchasing proportional insurance. Parameter conditions under which poverty trapping is not certain in both cases are derived. For the uninsured model, a new closed-form expression for the trapping probability is obtained when the remaining proportion of capital after a loss has a beta distribution, showing that the trapping probability decays algebraically as the initial capital increases. When insurance is purchased and the remaining proportion is uniformly distributed, the trapping probability is computed by solving a non-local integro-differential equation. Our results show that insurance can prevent otherwise certain trapping in some cases, although it may increase trapping risk for households with initial capital barely above the poverty line, while reducing trapping risk for households with higher initial capital.

Date: 2023-09, Revised 2026-09
References: Add references at CitEc
Citations:

Downloads: (external link)
https://arxiv.org/pdf/2310.09295 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2310.09295

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().