Reliability of Risk Management: Market Insurance, Self-Insurance and Self-Protection Reconsidered
AbstractThis paper examines the three main tools of risk management in a setting where reliability cannot be guaranteed. Thus, for example, insurers might be insolvent, sprinkler systems might be inoperative and alarm systems might be faulty. These types of nonreliability are shown to have significant consequences for risk management. In particular, the relationships between increased risk aversion and the use of the various risk management tools do not carry over from models with full reliability. Moreover, the well-known result of Ehrlich and Becker, that market insurance and self-insurance are substitutes, is shown to fail in the presence of nonreliability risk. The Geneva Papers on Risk and Insurance Theory (1991) 16, 45–58. doi:10.1007/BF00942856
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Bibliographic InfoArticle provided by Palgrave Macmillan in its journal The Geneva Papers on Risk and Insurance Theory.
Volume (Year): 16 (1991)
Issue (Month): 1 (June)
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- Machina, Mark J, 2000. "Payoff Kinks in Preferences Over Lotteries," University of California at San Diego, Economics Working Paper Series qt7vn7d2hs, Department of Economics, UC San Diego.
- Huang, Rachel J., 2012. "Ambiguity aversion, higher-order risk attitude and optimal effort," Insurance: Mathematics and Economics, Elsevier, vol. 50(3), pages 338-345.
- Ozlem Ozdemir, 2007. "Valuation of Self-Insurance and Self-Protection under Ambiguity: Experimental Evidence," Jena Economic Research Papers 2007-034, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
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