Risk Aversion and Self-Insurance-cum-Protection

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Abstract

Self-insurance and self-protection have been discussed separately in the literature. However, as observed in practice, many actions individuals take to modify a potential loss serve both as self-insurance and as self-protection. Given this practical importance of self-insurance-cum-protection activities, this paper examines the effect of increased risk aversion on such activities. The analysis shows that the effect depends in part on the shape of the loss function and that of the probability function.

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