Abstract

We study the optimal insurance demand in the (mu, sigma) space when the decision-maker faces a first-order risk increase. In particular, we investigate the effect of an increase in the expected damage when the variance is held constant. An unambiguous result is derived on insurance demand that differs from previous results in the literature in that it does not depend on additional assumption such as DARA utility functions or the level of risk aversion elasticity. (C) 2014 Elsevier Inc. All rights reserved.