ISSN:
1573-7187
Keywords:
Endogenous risk
;
protection premium
;
flexibility
Source:
Springer Online Journal Archives 1860-2000
Topics:
Sociology
,
Economics
Notes:
Abstract We introduce two types of protection premia. The unconstrained protection premium, πu, is the individual's willingness to pay for certain protection efficiency given flexibility to adjust optimally the investment in protection. The constrained protection premium, πc, measures willingness to pay for certain protection efficiency given no flexibility to adjust the investment in protection. πu depends on tastes and wealth as well as protection technology whereas πc depends only on technology. We show that πc cannot exceed πu and develop necessary conditions for πc=πu. Optimal protection for an individual with decision flexibility may be larger or smaller than that desired under no flexibility.
Type of Medium:
Electronic Resource
URL:
http://dx.doi.org/10.1007/BF01083167
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