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.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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- Gilberto Turati & Luigi Buzzacchi, 2009. "Optimal risk allocation in the provision of local public services: can a private insurer be better than a public mutual fund?," Working Papers 2009/21, Institut d'Economia de Barcelona (IEB).
- Swenja Surminski & Delioma Oramas-Dorta, 2013. "Do flood insurance schemes in developing countries provide incentives to reduce physical risks?," Grantham Research Institute on Climate Change and the Environment Working Papers 119, Grantham Research Institute on Climate Change and the Environment.
- Céline Grislain-Letrémy & Bertrand Villeneuve, 2011. "Natural and Industrial Disasters : Land Use and Insurance," Working Papers 2011-32, Centre de Recherche en Economie et Statistique.
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