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Self-protection with random costs

Abstract : We study the consequences of introducing random costs (as opposed to certain costs) on the propensity to implement self-protection actions, i.e. actions reducing the probability of a loss. Our analysis is performed in four standard self-protection frameworks: (1) the one-period model in which the cost and benefit occur at the same period of time; (2) a variation of this one-period model where wealth in each state of nature is a random variable; (3) the one-period model where the cost of the self-protection action is only paid in the absence of loss; (4) the two-period model in which the cost of self-protection precedes its benefit. For each of these models we provide a set of conditions ensuring clear-cut effects to occur and a specific interpretation for each of them.
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https://hal.archives-ouvertes.fr/hal-03273664
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Submitted on : Monday, October 18, 2021 - 4:41:19 PM
Last modification on : Tuesday, January 4, 2022 - 6:27:32 AM
Long-term archiving on: : Wednesday, January 19, 2022 - 9:31:19 PM

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David Crainich, Mario Menegatti. Self-protection with random costs. Insurance: Mathematics and Economics, Elsevier, 2021, 98, pp.63-67. ⟨10.1016/j.insmatheco.2021.02.006⟩. ⟨hal-03273664⟩

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