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Institutional Quality, Knightian Uncertainty, and Insurability

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  • S. Nuri Erbas
  • Chera L. Sayers
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    Abstract

    Knightian uncertainty (ambiguity) implies presence of uninsurable risks. Institutional quality may be a good indicator of Knightian uncertainty. This paper correlates non-life insurance penetration in 70 countries with income level, financial sector depth, country risk, a measure of cost of insurance, and the World Bank governance indexes. We find that institutional quality-transparency-uncertainty nexus is the dominant determinant of insurability across countries, surpassing the explanatory power of income level. Institutional quality, as it reflects on the level of uncertainty, is the deeper determinant of insurability. Insurability is lower when governance is weaker.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/179.

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    Length: 15
    Date of creation: 01 Jul 2006
    Date of revision:
    Handle: RePEc:imf:imfwpa:06/179

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    Related research

    Keywords: Financial sector; Governance; non-life insurance; life insurance; insurance markets; insurance coverage; insurance companies; life insurance premiums; insurance premiums; insurance claims; fire insurance; financial systems; economic risks; catastrophes; social security; emerging markets;

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Udaibir S. Das & Richard Podpiera & Nigel Davies, 2003. "Insurance and Issues in Financial Soundness," IMF Working Papers 03/138, International Monetary Fund.
    2. Arvind Subramanian & Francesco Trebbi & Dani Rodrik, 2002. "Institutions Rule," IMF Working Papers 02/189, International Monetary Fund.
    3. Robin M. Hogarth & Howard Kunreuther, 1992. "Pricing Insurance and Warranties: Ambiguity and Correlated Risks," The Geneva Risk and Insurance Review, Palgrave Macmillan, vol. 17(1), pages 35-60, June.
    4. Kunreuther, Howard & Meszaros, Jacqueline & Hogarth, Robin M. & Spranca, Mark, 1995. "Ambiguity and underwriter decision processes," Journal of Economic Behavior & Organization, Elsevier, vol. 26(3), pages 337-352, May.
    5. S. Nuri Erbas, 2004. "Ambiguity, Transparency, and Institutional Strength," IMF Working Papers 04/115, International Monetary Fund.
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