Chapter · January 998 doi: 10. 1007/978-1-4615-6187-3 10 citations reads 2,488 author: Some of the authors of this publication are also working on these related projects

The Concept of Self-Protection 

 

An analysis of the insured's decisions to invest in reducing the probability and the 

severity  of  a  loss  has  been  examined  by  Ehrlich  and  Becker  (1972).  The 

expenditure to reduce the probability of a loss is called self-protection (i.e. loss-

prevention) and the expenditure to reduce the severity or size of a loss is called 

self-insurance. According to previous definitions, the term loss-reduction would 

seem a better terminology. 

 

The model of Ehrlich and Becker presents two main results: 1) self-insurance 

and commercial insurance (market insurance) are substitutes; 2) If the price of 

insurance  depends  on  the  level  of  self-protection,  then  insurance  and  self-

protection are complements or joint products.

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