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Leaving the market or reducing the coverage? A model-based experimental analysis of the demand for insurance

Author

Listed:
  • Anne Corcos

    (CNRS, Université de Picardie)

  • François Pannequin

    (Université Paris-Saclay)

  • Claude Montmarquette

    (CIRANO, Université de Montréal)

Abstract

This study develops a theoretical, and experimental analysis addressing the issue of premium variations on the demand for insurance. Accounting for risk attitudes, our contribution disentangles the decision to buy insurance from the conditional demand (the non-null demand for insurance). Partially validating our theoretical predictions, our experimental results show that, when it has an effect, a non-massive increase in the premium (either in the unit price or the fixed cost) exclusively results in an exit from the insurance market (the risk lovers first, then the risk averters). Moreover, our study highlights a key feature of risk-seeking agents' behavior; they exhibit behavior consistent with gambling and opportunism rather than a lack of interest in insurance.

Suggested Citation

  • Anne Corcos & François Pannequin & Claude Montmarquette, 2017. "Leaving the market or reducing the coverage? A model-based experimental analysis of the demand for insurance," Experimental Economics, Springer;Economic Science Association, vol. 20(4), pages 836-859, December.
    • Handle: RePEc:kap:expeco:v:20:y:2017:i:4:d:10.1007_s10683-017-9513-8
    DOI: 10.1007/s10683-017-9513-8
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    Cited by:

    1. d’Albis, Hippolyte & Attanasi, Giuseppe & Thibault, Emmanuel, 2020. "An experimental test of the under-annuitization puzzle with smooth ambiguity and charitable giving," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 694-717.
    2. Mol, Jantsje M. & Botzen, W. J. Wouter & Blasch, Julia E., 2020. "Risk reduction in compulsory disaster insurance: Experimental evidence on moral hazard and financial incentives," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 84(C).
    3. François Pannequin & Anne Corcos, 2020. "Are compulsory insurance and self-insurance substitutes or complements? A matter of risk attitudes," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 45(1), pages 24-35, March.
    4. François Pannequin & Anne Corcos, 2017. "Compulsory insurance and voluntary self-insurance: substitutes or complements? A matter of risk attitudes," Working Papers 2017-78, Center for Research in Economics and Statistics.
    5. Claire Mouminoux & Jean-Louis Rullière & Stéphane Loisel, 2018. "Obfuscation and Honesty Experimental Evidence on Insurance Demand with Multiple Distribution Channels," Working Papers hal-01819522, HAL.
    6. Anne Corcos & François Pannequin & Claude Montmarquette,, 2017. "Measuring individual risk-attitudes: an experimental comparison between Holt & Laury measure and an insurance-choices-based procedure," Working Papers 2017-79, Center for Research in Economics and Statistics.
    7. Mol, Jantsje M. & Botzen, W.J. Wouter & Blasch, Julia E., 2020. "Behavioral motivations for self-insurance under different disaster risk insurance schemes," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 967-991.
    8. Pannequin, François & Corcos, Anne & Montmarquette, Claude, 2020. "Are insurance and self-insurance substitutes? An experimental approach," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 797-811.

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    More about this item

    Keywords

    Demand for insurance; Conditional demand; Decision to buy insurance; Risk attitude; Experimental study;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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