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Self-Insurance and Self-Protection as Public Goods

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  • Lohse, Tim
  • Julio R. Robledo
  • Ulrich Schmidt

Abstract

Many public goods like dams, fire departments, and lighthouses do not provide direct utility but act more as insurance devices against floods, fire, and shipwreck. They either diminish the probability or the size of the loss. We extend the public good model with this insurance aspect and generalize Samuelson's efficient allocation rule when self-insurance and self-protection expenditures are pure public goods. Some comparative static results with respect to changes in income and risk behavior are derived. As some of the sketched risks are insurable while some others are not, we introduce further the possibility of risk coverage by private market insurance. We analyze the interaction of such an insurance with the public good level, both for efficient provision and for private provision equilibria. It turns out that the levels of self-insurance and self-protection decrease when being privately provided. Moreover, it appears a strategic substitutability between the public good and market insurance which leads to an additional decline of the provision levels.

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Bibliographic Info

Paper provided by Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Hannover Economic Papers (HEP) with number dp-354.

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Length: 21 pages
Date of creation: Dec 2006
Date of revision:
Handle: RePEc:han:dpaper:dp-354

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Keywords: self-insurance; self-protection; efficient provision of public goods; private provision of public goods; market insurance;

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References

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Citations

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Cited by:
  1. Petrolia, Daniel R. & Hwang, Joonghyun & Landry, Craig E. & Coble, Keith H., 2013. "Wind Insurance and Mitigation in the Coastal Zone," Working Papers, Mississippi State University, Department of Agricultural Economics 160462, Mississippi State University, Department of Agricultural Economics.
  2. Toshihiro Ihori & Martin McGuire, 2006. "Group Provision Against Adversity: Security By Insurance vs. Protection," CARF F-Series, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo CARF-F-086, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  3. Kai A. Konrad & Marcel Thum, 2012. "The Role of Economic Policy in Climate Change Adaptation," CESifo Working Paper Series 3959, CESifo Group Munich.
  4. Tim Lohse & Julio R. Robledo, 2013. "Public Self-Insurance and the Samaritan’s Dilemma in a Federation," Public Finance Review, , vol. 41(1), pages 92-120, January.
  5. Traub, Stefan, 2006. "The Provision of Local Public Services in a Risky Environment: An Application to Crime," Economics Working Papers 2006,03, Christian-Albrechts-University of Kiel, Department of Economics.
  6. Toshihiro Ihori & Martin McGuire, 2006. "Patterns of Non-exponential Growth of Macroeconomic Models: Two-parameter Poisson-Dirichlet Models," CIRJE F-Series CIRJE-F-450, CIRJE, Faculty of Economics, University of Tokyo.
  7. Wen-Kai Wang & Christian-Oliver Ewald, 2010. "Dynamic voluntary provision of public goods with uncertainty: a stochastic differential game model," Decisions in Economics and Finance, Springer, Springer, vol. 33(2), pages 97-116, November.
  8. Toshihiro Ihori & Martin McGuireb, 2008. "National Adversity: Managing Insurance and Protection," CIRJE F-Series CIRJE-F-554, CIRJE, Faculty of Economics, University of Tokyo.
  9. Tim Lohse & Julio R. Robledo, 2012. "Public Self-Insurance and the Samaritan‘s Dilemma in a Federation," Ruhr Economic Papers, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen 0330, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  10. Heike Auerswald & Kai A. Konrad & Marcel Thum, 2011. "Adaptation, Mitigation and Risk-Taking in Climate Policy," CESifo Working Paper Series 3320, CESifo Group Munich.

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