Working Paper: CEPR ID: DP1423
Authors: Luigi Guiso; Tullio Jappelli
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.
Keywords: insurance; background risk; prudence
JEL Codes: D81
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher levels of uninsurable background risk (G22) | increased demand for insurable risks (G52) |
| higher subjective earnings variance (J31) | increased likelihood of purchasing casualty insurance (G52) |
| increased household wealth (G59) | decreased responsiveness to income uncertainty in purchasing insurance (G52) |
| fluctuations in income uncertainty (D89) | influence on cyclical behavior of insurance premiums (E32) |
| higher household resources (D19) | increased probability of purchasing insurance (G52) |