Self-protection and insurance with interdependencies
AbstractWe study optimal investment in self-protection of insured individuals when they face interdependencies in the form of potential contamination from others. If individuals cannot coordinate their actions, then the positive externality of investing in self-protection implies that, in equilibrium, individuals underinvest in self-protection. Limiting insurance coverage through deductibles or selling at-fault insurance can partially internalize this externality and thereby improve individual and social welfare. --
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Bibliographic InfoPaper provided by Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 2007/22.
Date of creation: 2007
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Externality; Mitigation; Insurance;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D62 - Microeconomics - - Welfare Economics - - - Externalities
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
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