DP1423 | Background Uncertainty and the Demand for Insurance Against Insurable Risks

Publication Date

30/06/1996

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Abstract

Theory suggests that people facing higher uninsurable background risk buy more insurance against other risks that are insurable. This proposition is supported by Italian cross-sectional data. It is shown that the probability of purchasing casualty insurance increases with earnings uncertainty. This finding is consistent with consumer preferences being characterized by decreasing absolute prudence.