Institutional Quality, Knightian Uncertainty, and Insurability
AbstractKnightian 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 InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 06/179.
Date of creation: 01 Jul 2006
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-11-25 (All new papers)
- NEP-DEV-2006-11-25 (Development)
- NEP-IAS-2006-11-25 (Insurance Economics)
- NEP-UPT-2006-11-25 (Utility Models & Prospect Theory)
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- Udaibir S. Das & Richard Podpiera & Nigel Davies, 2003. "Insurance and Issues in Financial Soundness," IMF Working Papers 03/138, International Monetary Fund.
- Arvind Subramanian & Francesco Trebbi & Dani Rodrik, 2002. "Institutions Rule," IMF Working Papers 02/189, International Monetary Fund.
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- S. Nuri Erbas, 2004. "Ambiguity, Transparency, and Institutional Strength," IMF Working Papers 04/115, International Monetary Fund.
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