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Trust & Insurance Markets

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  • Luigi Guiso

    (EIEF)

Abstract

Trust is a key determinants of any financial transaction. Exchanges in insurance markets are a particular type of financial transaction where a current payment – the premium – is exchanged for a promise of a future, contingent payment – the indemnity due when the casualty occurs. We argue that trust is key in fostering these type of exchanges. Trust enters two ways: because it affects the willingness of the company to supply insurance when the insured can cheat by claiming indemnities that are not due. Because it discourages people from purchasing insurance if they do not trust the company's promise of readily paying the indemnity when due. We prove theoretically and empirically the relevance of trust in insurance exchanges and discuss policies to foster it.

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File URL: http://www.eief.it/files/2012/09/wp-07-trust-insurance-markets.pdf
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Bibliographic Info

Paper provided by Einaudi Institute for Economics and Finance (EIEF) in its series EIEF Working Papers Series with number 1207.

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Length: 26 pages
Date of creation: 2012
Date of revision: Jul 2012
Handle: RePEc:eie:wpaper:1207

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  1. Butler, Jeff & Giuliano, Paola & Guiso, Luigi, 2012. "Trust and Cheating," CEPR Discussion Papers 9202, C.E.P.R. Discussion Papers.
  2. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2000. "The Role of Social Capital in Financial Development," CRSP working papers 511, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  3. Iris Bohnet & Fiona Greig & Benedikt Herrmann & Richard Zeckhauser, 2008. "Betrayal Aversion: Evidence from Brazil, China, Oman, Switzerland, Turkey, and the United States," American Economic Review, American Economic Association, vol. 98(1), pages 294-310, March.
  4. Francois, Patrick & Fujiwara, Thomas & van Ypersele, Tanguy, 2009. "Competition Builds Trust," Economics working papers patrick_francois-2009-65, Vancouver School of Economics, revised 02 Dec 2009.
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