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Entropy Characterisation of Insurance Demand: Theory and Evidence

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  • NAKATA Hiroyuki
  • SAWADA Yasuyuki
  • TANAKA Mari

Abstract

This paper characterises the insurance demand in terms of the entropy of the underlying probability distribution for losses. A characterisation of this nature provides the prediction that insurance for large losses with small probabilities tends to be purchased less frequently than insurance for moderate losses with higher probabilities, without deviating from the standard expected utility framework. The predictions of the theoretical model are tested empirically using household data collected in Vietnam.

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File URL: http://www.rieti.go.jp/jp/publications/dp/10e009.pdf
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Bibliographic Info

Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 10009.

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Length: 34 pages
Date of creation: Feb 2010
Date of revision:
Handle: RePEc:eti:dpaper:10009

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Cited by:
  1. Matsuda, Ayako & Kurosaki, Takashi & Sawada, Yasuyuki, 2013. "Rainfall and Temperature Index Insurance in India: Project Documentation," PRIMCED Discussion Paper Series 34, Institute of Economic Research, Hitotsubashi University.

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