In this article, a model of life insurance holding is formulated. It takes into account the liquidation values and liquidity of estate assets and the ability of life insurance death benefits to bypass the probate process. Tobit regressions based on the model are run using the U.S. Survey of Consumer Finances 1989 data set. The results showed net worth (fixing net liquid assets and annuity wealth) and annuity wealth (fixing net liquid assets and net worth) to be positively related to life insurance holding. Moreover, net liquid asset holding (fixing net worth and annuity wealth) and charitable motives also affect life insurance holding.

This article suggests that liquidity may be an important reason for a corporation to purchase property insurance. A model of a risk-neutral producer facing an endogenously determined risk of property damage under an output contract that penalizes underproduction is formulated to exemplify such a real need of liquidity. Under the output contract, the producer may purchase full unfavorable property insurance even when postloss financing is available. Surprisingly, the conclusion may still hold when the cost of postloss financing equals that of long-term capital, provided that the rate of underproduction penalty is sufficiently high. Similar conclusions apply when postloss financing is replaced by planned internal reserve (self-insurance) that may be invested in the short run at an interest rate that is lower than the long-term cost of capital. When the capital market is perfect, however, the holding of planned internal reserve eliminates the purchase of actuarially unfavorable property insurance. Copyright The Journal of Risk and Insurance, 2006.

This article derives the necessary and sufficient conditions for a coinsurance-type insurance policy covering a particular risk to be inferior and to be Giffen. Mossin's decreasing absolute risk aversion assumption for insurance to be inferior is avoided. The result generalizes Hoy and Robson and Briys, Dionne, and Eeckhoudt's results to the case with a continuum of states and relaxes their assumption of constant relative risk aversion. It is shown that knowledge about the distribution of risk can be used to relax assumptions on an utility function for a coinsurance-type insurance policy to be inferior and to be Giffen. Copyright (c) The Journal of Risk and Insurance, 2008.

No abstract

This article compares the effects of Social Security and other mortality-contingent social insurance programs (particularly Medicare) on the personal saving, consumption, national saving, and welfare of the current generation. The two-period Fisherian model under lifetime uncertainty shows that the effects of Social Security and Medicare on personal saving differ substantially. In addition, the qualitative effects of Medicare on personal saving and national saving are found to be different. More important, precautionary saving motives in the strict sense of Leland may or may not be required for various social insurance policies to reduce personal or national saving. Therefore, a direct relationship between precautionary saving motives and the qualitative effects of various social insurance programs on savings may be overemphasized in the literature. Finally, it is found that other factors such as actuarial unfairness and percentage of funding may or may not affect the results.