Natural Disaster Insurance and the Equity-Efficiency Trade-Off
AbstractThis article investigates the role of private insurance in the prevention and mitigation of natural disasters. We characterize the equity-efficiency trade-off faced by the policymakers under imperfect information about individual prevention costs. It is shown that a competitive insurance market with actuarial rate making and compensatory tax-subsidy transfers is likely to dominate regulated uniform insurance pricing rules or state-funded assistance schemes. The model illustrates how targeted tax cuts on insurance contracts can improve the incentives to prevention while compensating individuals with high prevention costs. The article highlights the complementarity between individual incentives through tax cuts and collective incentives through grants to the local jurisdictions where risk management plans are enforced. Copyright The Journal of Risk and Insurance, 2008.
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Bibliographic InfoArticle provided by The American Risk and Insurance Association in its journal Journal of Risk & Insurance.
Volume (Year): 75 (2008)
Issue (Month): 1 ()
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Other versions of this item:
- Pierre Picard, 2005. "Natural disaster insurance and the equity-efficiency trade-off," Working Papers hal-00243028, HAL.
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