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Tuesday, August 3 • 2:30pm - 4:00pm
5B2 When is safety a normal good?

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Richard Peter, University of Iowa

A probability threshold determines whether safety investments are a normal good or inferior Sweeney and Beard (1992, JRI). We show that this threshold is 0.5 for quadratic utility and less than 0.5 for standard utility. We compute the threshold explicitly for the classes of iso-elastic and linex utility. Self-protection is more likely to be a normal good when risk aversion is high or preventable losses represent a high proportion of income. We also characterize the probability threshold that determines whether an increase in loss severity stimulates the demand for self-protection.

Discussant
RV

R. Vijay Krishna

Florida State University

Presenters
RP

Richard Peter

University of Iowa



Tuesday August 3, 2021 2:30pm - 4:00pm EDT

Attendees (9)