Property Insurance, Portfolio Selection and their Interdependence

Fwu-Ranq Chang

No 2260, CESifo Working Paper Series from CESifo

Abstract: This paper studies the interdependence between property insurance and portfolio selection. The insurance premium of property loss is shown to play the role of subsistence consumption in the analysis. Then, “security” becomes a necessity good and an increase in any insurance parameter would make the investor more “conservative.” The effect of a stock market parameter on the marginal propensity to insure is shown to be opposite that on the marginal propensity to consume. Consequently, an increase in volatility would encourage those with a greater-than-unity relative risk aversion to purchase more insurance at the expense of current consumption.

Keywords: insurance premium; subsistence consumption; portfolio substitution; optimal saving under uncertainty (search for similar items in EconPapers)
JEL-codes: E21 G11 G22 (search for similar items in EconPapers)
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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