This paper shows that, in the temporal model of Eeckhoudt et al. (2012), prudence alone is sufficient to obtain a precautionary effort. Moreover, our conclusions relax the assumption of the convexity of loss probability. We further analyze the effect of the introduction or deterioration of background risks on precautionary effort in different settings.
|Number of pages||7|
|Journal||Journal of Risk and Insurance|
|Early online date||10 Jul 2014|
|Publication status||Published - Dec 2015|
Bibliographical noteThis work is supported by the Fundamental Research Funds for the Central Universities under Research Project No. NR2014002, the Faculty Research Grant of Lingnan University under Research Project No. DR12A9, and Direct Grant for Research of Lingnan University under Research Project No. DR13C8.
This paper is also available at Social Science Research Network at http://ssrn.com/abstract=2445785