Public-Private Programs for Covering Extreme Events: The Impact of Information Distribution on Risk-Sharing
Recent extreme events have significantly raised the question of the role of public and private sectors in providing adequate financial protection to victims. Developing publicprivate insurance programs could constitute one of the most appealing ways to solve the problem of financing the consequences of those large-scale catastrophes. However, catastrophic risks present very specific characteristics which challenge any traditional economic approaches to analyzing them. Further, the government may have better information about the risk than insurers (e.g., national security). Currently, little has been done in the economic literature to better understand how this assumption impacts on how risks are shared between all stakeholders in such partnerships.This paper analyzes policy issues related to risk/information sharing between insurers and a dedicated State-backed governmental reinsurer, who are part of a national partnership program. The government develops a mandatory coverage against catastrophic risks and decides the level of premiums levied against the insureds. Using a game-theoretical approach, we show that a government can act to induce private insurers in the country to participate in the partnership instead of leaving the market. By modulating its premium policy, the government can also led them to adopt two different strategies: (1) behave as a simple financial intermediary between the insured and the public reinsurer so that the latter supports the largest portion of the risks or (2) conserve the largest part of risks to benefit from market conditions created by the government seeking to avoid its intervention ex post to bail out the public reinsurer. The paper also discusses the impacts of government information-sharing strategies on the game equilibrium. Illustrations are provided for natural hazards and terrorism risk.
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 1 (2006)
Issue (Month): 2 (February)
|Contact details of provider:|| Web page: http://www.degruyter.com|
|Order Information:||Web: http://www.degruyter.com/view/j/apjri|
When requesting a correction, please mention this item's handle: RePEc:bpj:apjrin:v:1:y:2006:i:2:n:2. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.