Logo
Munich Personal RePEc Archive

Willingness to overpay for insurance and for consumer credit: search and risk behavior under price dispersion

Malakhov, Sergey (2014): Willingness to overpay for insurance and for consumer credit: search and risk behavior under price dispersion. Published in: Expert Journal of Economics , Vol. 2, No. 3 (2014): pp. 109-119.

Warning
There is a more recent version of this item available.
[thumbnail of MPRA_paper_60010.pdf]
Preview
PDF
MPRA_paper_60010.pdf

Download (1MB) | Preview

Abstract

When income growth under price dispersion reduces the time of search and raises prices of purchases, the increase in purchase price can be presented as the increase in the willingness to pay for insurance or the willingness to pay for consumer credit. The optimal consumer decision represents the trade-off between the propensity to search for beneficial insurance or consumer credit, and marginal savings on insurance policy or consumer credit. Under price dispersion the indirect utility function takes the form of cubic parabola, where the risk aversion behavior ends at the saddle point of the comprehensive insurance or the complete consumer credit. The comparative static analysis of the saddle point of the utility function discovers the ambiguity of the departure from risk-neutrality. This ambiguity can produce the ordinary risk seeking behavior as well as mathematical catastrophes of Veblen-effect’s imprudence and over prudence of family altruism. The comeback to risk aversion is also ambiguous and it results either in increasing or in decreasing relative risk aversion. The paper argues that the decreasing relative risk aversion comes to the optimum quantity of money.

Available Versions of this Item

Atom RSS 1.0 RSS 2.0

Contact us: mpra@ub.uni-muenchen.de

This repository has been built using EPrints software.

MPRA is a RePEc service hosted by Logo of the University Library LMU Munich.