Internalizing externalities of loss-prevention through insurance monopoly: An analysis of interdependent risks
AbstractWhen risks are interdependent, loss-prevention activities of one agent influence the risks faced by others. The social return to an investment in loss-prevention is greater than the private return. From a perspective of social welfare, the market allocation is not optimal and leads to under-investment in prevention allround. This article considers consumer welfare under conditions of interdependent risks and demonstrates that a monopolistic insurer can internalize the arising externalities by setting appropriate prevention incentives through insurance premiums. A monopoly insurance solution reduces not only costs of risk selection, but can also play an important role in loss-prevention. --
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Hamburg, Institute for Risk and Insurance in its series Working Papers on Risk and Insurance with number 16.
Date of creation: 2005
Date of revision:
externalities; insurance monopoly; Nash equilibrium; social welfare;
Find related papers by JEL classification:
- C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
- D62 - Microeconomics - - Welfare Economics - - - Externalities
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
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.:
- Harris Schlesinger & Emilio Venezian, 1986. "Insurance Markets with Loss-Prevention Activity: Profits, Market Structure, and Consumer Welfare," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 227-238, Summer.
- Mario Jametti & Thomas von Ungern-Sternberg, 2003.
"Assessing the Efficiency of an Insurance Provider - A Measurement Error Approach,"
CESifo Working Paper Series
928, CESifo Group Munich.
- Mario Jametti & Thomas Ungern-Sternberg, 2005. "Assessing the Efficiency of an Insurance Provider—A Measurement Error Approach," The Geneva Papers on Risk and Insurance Theory, Springer, Springer, vol. 30(1), pages 15-34, June.
- Mario Jametti & Thomas von Ungern-Sternberg, 2005. "Assessing the Efficiency of an Insurance Provider—A Measurement Error Approach," The Geneva Risk and Insurance Review, Palgrave Macmillan, vol. 30(1), pages 15-34, June.
- Mario JAMETTI & Thomas VON UNGERN-STERNBERG, 2003. "Assessing the Efficiency of an Insurance Provider - A Measurement Error Approach," Cahiers de Recherches Economiques du DÃ©partement d'EconomÃ©trie et d'Economie politique (DEEP), UniversitÃ© de Lausanne, FacultÃ© des HEC, DEEP 03.05, Université de Lausanne, Faculté des HEC, DEEP.
- Brito, Dagobert L. & Sheshinski, Eytan & Intriligator, Michael D., 1991. "Externalities and compulsary vaccinations," Journal of Public Economics, Elsevier, Elsevier, vol. 45(1), pages 69-90, June.
- Hirsch, Bernhard & Nell, Martin, 2007. "Anreizkompatibilität von Entschädigungssystemen für Kosten und Verluste aus Tierseuchenausbrüchen in der Europäischen Union," Working Papers on Risk and Insurance 21, University of Hamburg, Institute for Risk and Insurance.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).
If references are entirely missing, you can add them using this form.