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Self‐Insurance and Self‐Protection as Public Goods

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  • Tim Lohse
  • Julio R. Robledo
  • Ulrich Schmidt

Abstract

Many public goods like lighthouses and fire departments do not provide direct utility but act as insurance devices against shipwreck and destruction. They either diminish the size and/or the probability of the loss. We extend the public good model with this insurance aspect and generalize Samuelson?s efficient allocation rule when self-insurance and self-protection expenditures are pure public goods. Some comparative static results with respect to changes in income and risk behavior are derived. We analyze the interaction of private market insurance with the public good level, both for efficient provision and for private provision equilibria. The privately provided levels of self- insurance and self-protection decrease when market insurance is available, which suggests that the state should invest more in preventing not insurable risks like wars. Additionally, the state should focus on self-protection expenditures if those are better observable than private self-protection effort. --

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Bibliographic Info

Article provided by The American Risk and Insurance Association in its journal The Journal of Risk and Insurance.

Volume (Year): 79 (2012)
Issue (Month): 1 (03)
Pages: 57-76

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Handle: RePEc:bla:jrinsu:v:79:y:2012:i:1:p:57-76

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References

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Citations

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Cited by:
  1. Heike Auerswald & Kai A. Konrad & Marcel Thum, 2011. "Adaptation, Mitigation and Risk-Taking in Climate Policy," CESifo Working Paper Series 3320, CESifo Group Munich.
  2. Toshihiro Ihori & Martin McGuireb, 2008. "National Adversity: Managing Insurance and Protection," CIRJE F-Series CIRJE-F-554, CIRJE, Faculty of Economics, University of Tokyo.
  3. Toshihiro Ihori & Martin McGuire, 2006. "Group Provision Against Adversity: Security By Insurance vs. Protection," CARF F-Series CARF-F-086, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  4. Toshihiro Ihori & Martin McGuire, 2006. "Patterns of Non-exponential Growth of Macroeconomic Models: Two-parameter Poisson-Dirichlet Models," CIRJE F-Series CIRJE-F-450, CIRJE, Faculty of Economics, University of Tokyo.
  5. Tim Lohse & Julio R. Robledo, 2012. "Public Self-Insurance and the Samaritan‘s Dilemma in a Federation," Ruhr Economic Papers 0330, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  6. Wen-Kai Wang & Christian-Oliver Ewald, 2010. "Dynamic voluntary provision of public goods with uncertainty: a stochastic differential game model," Decisions in Economics and Finance, Springer, vol. 33(2), pages 97-116, November.
  7. Kai A. Konrad & Marcel Thum, 2012. "The Role of Economic Policy in Climate Change Adaptation," CESifo Working Paper Series 3959, CESifo Group Munich.
  8. Traub, Stefan, 2006. "The Provision of Local Public Services in a Risky Environment: An Application to Crime," Economics Working Papers 2006,03, Christian-Albrechts-University of Kiel, Department of Economics.

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