Journal of Risk and Uncertainty

, Volume 38, Issue 2, pp 159–172 | Cite as

Conditional payments and self-protection

  • Liqun LiuEmail author
  • Andrew J. Rettenmaier
  • Thomas R. Saving


Self-protection can be financed either by upfront payments or by conditional payments (or contingent fees) in which individuals pay a provider only when a favorable outcome is realized. We find that, from the vantage point of a risk-averse individual, conditional payments welfare dominate upfront payments in the state-independent framework, but upfront payments welfare dominate conditional payments in the state-dependent framework. Moreover, more risk aversion always implies more self-protection under conditional payments, for both state-independent and state-dependent frameworks. In contrast, it has been previously argued that more risk aversion does not necessarily imply more self-protection under upfront payments.


Conditional payment Contingent fee Self protection Insurance Risk aversion 

JEL Classification

D61 D81 



The authors want to thank Louis Eeckhoudt, Bruno Jullien, W. Kip Viscusi and a referee for very helpful comments and suggestions. Excellent research assistance from Amy Hopson is also greatly appreciated. All remaining errors are our own.


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Copyright information

© Springer Science+Business Media, LLC 2009

Authors and Affiliations

  • Liqun Liu
    • 1
    Email author
  • Andrew J. Rettenmaier
    • 1
  • Thomas R. Saving
    • 1
  1. 1.Private Enterprise Research CenterTexas A&M UniversityCollege StationUSA

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