Why Do People Buy Insurance? A Modern Answer to an Old Question

Markus Rieger-Fels

VfS Annual Conference 2021 (Virtual Conference): Climate Economics from Verein für Socialpolitik / German Economic Association

Abstract: I revisit the question of which motive underlies insurance demand. I draw on the literature of state-dependent utility and on the literature of imperfectly divisible consumption to argue that the general purpose of insurance is not a risk transfer, but meeting a conditional need. In this way, insurance aligns the risk in one's ftnancial endowment with the risk in one's ftnancial needs. This generalization extends the classical view of insurance. I show how this extension greatly simpliftes the generalization of classic results. I also discuss how the novel deftnition has implications for our discipline's research agenda and policy advice

Keywords: Insurance; Risk Aversion; State Dependence; Divisibility of Consumption; Risk Preferences (search for similar items in EconPapers)
JEL-codes: D01 D81 G22 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-ias and nep-upt
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Journal Article: Why do people buy insurance? A modern answer to an old question (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc21:242418

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