A note on the joint occurrence of insurance and gambling

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Abstract

This note provides a formal justification for the Friedman and Savage nonconcavity in the utility of money. This is based on the possibility of indivisibilities in the consumption possibilities set. A precise characterization of when gambling is optimal (and the optimal type) is provided in one special case. Some possible limitations are considered.

Original languageEnglish (US)
Pages (from-to)97-111
Number of pages15
JournalMacroeconomic Dynamics
Volume12
Issue number1
DOIs
StatePublished - Feb 1 2008

Bibliographical note

Publisher Copyright:
© 2007 Cambridge University Press.

Keywords

  • Gambling
  • Indivisibilities
  • Insurance
  • Labor supply

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