Risk Selection in Natural-Disaster Insurance
AbstractIt is widely recognized that market failure prevents efficient risk sharing in natural-disaster insurance, leading to several public-private partnership arrangements across the globe. We argue that risk selection by the private partner is potentially an important issue. We illustrate our concerns with a simple model of reinsurance in a natural-disaster insurance market, based on the French system. Risk selection is a likely equilibrium outcome. Notably, the policies implemented by the French government correspond to the ones we identify to alleviate risk selection. Next, we discuss two public-private partnership settings that deal effectively with risk selection: Florida and Spain.
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Bibliographic InfoArticle provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.
Volume (Year): 166 (2010)
Issue (Month): 2 (June)
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Other versions of this item:
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
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