CHANGES IN BACKGROUND RISK AND THE DEMAND FOR INSURANCE

The demand for insurance against loss from a particular risky asset is likely to depend on other risks the decisionmaker faces. For independ ently distributed other risks, referred to as background risk, Eeckhou dt and Kimball [1992] determine the effect on insurance demand of intr oducing background risk. Recently, Eeckhoudt, Gollier, and Schlesinger [1996] determine conditions on preferences such that first- and secon d-degree stochastic deteriorations in background risk lead to a decrea se in the decision-maker's willingness to accept other risks. These re sults, although formulated in a general decision model, also apply to insurance demand. This article continues analysis of this question by determining the effect on insurance demand of several other general ch anges in background risk.