Willingness to overpay for insurance and for consumer credit: search and risk behavior under price dispersion

Sergey Malakhov

MPRA Paper from University Library of Munich, Germany

Abstract: When income growth under price dispersion reduces the time of search and raises prices of purchases, the increase in purchase price can be presented as the increase in the willingness to pay for insurance or the willingness to pay for consumer credit. The optimal consumer decision represents the trade-off between the propensity to search for beneficial insurance or consumer credit, and marginal savings on insurance policy or consumer credit. Under price dispersion the indirect utility function takes the form of cubic parabola, where the risk aversion behavior ends at the saddle point of the comprehensive insurance or the complete consumer credit. The comparative static analysis of the saddle point of the utility function discovers the ambiguity of the departure from risk-neutrality. This ambiguity can produce the ordinary risk seeking behavior as well as mathematical catastrophes of Veblen-effect’s imprudence and over prudence of family altruism. The comeback to risk aversion is also ambiguous and it results either in increasing or in decreasing relative risk aversion. The paper argues that the decreasing relative risk aversion comes to the optimum quantity of money.

Keywords: consumer search; risk; insurance; credit; optimum quantity of money; Veblen effect; family altruism; mathematical catastrophe (search for similar items in EconPapers)
JEL-codes: D11 D81 (search for similar items in EconPapers)
Date: 2014-10-28
New Economics Papers: this item is included in nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/59720/1/MPRA_paper_59720.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/60010/1/MPRA_paper_60010.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/60358/1/MPRA_paper_60010.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/63922/1/MPRA_paper_63922.pdf revised version (application/pdf)

Related works:
Journal Article: Willingness to Overpay for Insurance and for Consumer Credit: Search and Risk Behavior Under Price Dispersion (2014)
Working Paper: Consumer search behavior and willingness to pay for insurance under price dispersion (2014)
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:pra:mprapa:59720

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().