Internalizing externalities of loss prevention through insurance monopoly: an analysis of interdependent risks
When risks are interdependent, an agent’s decision to self-protect affects the loss probabilities faced by others. Due to these externalities, economic agents invest too little in prevention relative to the socially efficient level by ignoring marginal external costs or benefits conferred on others. This paper analyzes an insurance market with externalities of loss prevention. It is shown in a model with heterogenous agents and imperfect information that a monopolistic insurer can achieve the social optimum by engaging in premium discrimination. An insurance monopoly reduces not only costs of risk selection, but may also play an important social role in loss prevention. Copyright The Geneva Association 2007
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.
References listed on IDEAS
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.:
- Brito, Dagobert L. & Sheshinski, Eytan & Intriligator, Michael D., 1991. "Externalities and compulsary vaccinations," Journal of Public Economics, Elsevier, vol. 45(1), pages 69-90, 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 Ungern-Sternberg, 2005. "Assessing the Efficiency of an Insurance Provider—A Measurement Error Approach," The Geneva Papers on Risk and Insurance Theory, Springer, 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," CESifo Working Paper Series 928, CESifo Group Munich.
- Mario JAMETTI & Thomas VON UNGERN-STERNBERG, 2003. "Assessing the Efficiency of an Insurance Provider - A Measurement Error Approach," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 03.05, Université de Lausanne, Faculté des HEC, DEEP.
- Kunreuther, Howard & Heal, Geoffrey, 2003. "Interdependent Security," Journal of Risk and Uncertainty, Springer, vol. 26(2-3), pages 231-49, March-May.
- Richard Arnott & Joseph Stiglitz, 1982.
"Moral Hazard and Optimal Commodity Taxation,"
500, Queen's University, Department of Economics.
- Geoffrey Heal & Howard Kunreuther, 2004. "Interdependent Security: A General Model," NBER Working Papers 10706, National Bureau of Economic Research, Inc.
- Thomas von Ungern-Sternberg, 2003. "State Intervention on the Market for Natural Damage Insurance in Europe," CESifo Working Paper Series 1067, CESifo Group Munich.
- Louis Kaplow, 1989.
"Incentives and Government Relief for Risk,"
NBER Working Papers
3007, National Bureau of Economic Research, Inc.
- Kangoh Lee, 2005. "Wealth Effects on Self-Insurance and Self-Protection against Monetary and Nonmonetary Losses," The Geneva Risk and Insurance Review, Palgrave Macmillan, vol. 30(2), pages 147-159, December.
- Howard Kunreuther & Geoffrey Heal, 2002. "Interdependent Security: The Case of Identical Agents," NBER Working Papers 8871, National Bureau of Economic Research, Inc.
- von Ungern-Sternberg, Thomas, 1996.
"The limits of competition: Housing insurance in Switzerland,"
European Economic Review,
Elsevier, vol. 40(3-5), pages 1111-1121, April.
- Thomas VON UNGERN-STERNBERG, 1995. "The Limits of Competition : Housing Insurance in Switzerland," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9511, Université de Lausanne, Faculté des HEC, DEEP.
- Felder, Stefan, 1996. "Fire insurance in Germany: A comparison of price-performance between state monopolies and competitive regions," European Economic Review, Elsevier, vol. 40(3-5), pages 1133-1141, April.
- Avery, Christopher & Heymann, S Jody & Zeckhauser, Richard, 1995. "Risks to Selves, Risks to Others," American Economic Review, American Economic Association, vol. 85(2), pages 61-66, May.
- Steven Shavell, 1979. "On Moral Hazard and Insurance," The Quarterly Journal of Economics, Oxford University Press, vol. 93(4), pages 541-562.
When requesting a correction, please mention this item's handle: RePEc:kap:geneva:v:32:y:2007:i:1:p:91-111. 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: (Sonal Shukla)or (Rebekah McClure)
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.