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Subsidizing risk prevention

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  • Mario Menegatti

    (Università di Parma)

Abstract

This work examines the effects of different kinds of subsidies on risk prevention from a theoretical standpoint. We show that both a subsidy on the cost of prevention activities and a subsidy on wealth have ambiguous effects on the level of present contemporaneous prevention. Similar kinds of subsidies have however increasing effects on the level of advance prevention and, under plausible assumptions, on future levels of contemporaneous prevention. We also show that social security subsidies may have decreasing effects on prevention activities while a kind of reverse social security has an increasing effects on them. This indicates that there is a trade-off between the social security aim of mitigating the negative consequences of bad events and the prevention aim of incentivizing choices which reduce the probability that these bad events occur.

Suggested Citation

  • Mario Menegatti, 2021. "Subsidizing risk prevention," Journal of Economics, Springer, vol. 134(2), pages 175-193, October.
    • Handle: RePEc:kap:jeczfn:v:134:y:2021:i:2:d:10.1007_s00712-021-00744-w
    DOI: 10.1007/s00712-021-00744-w
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    References listed on IDEAS

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    1. Crainich, David & Eeckhoudt, Louis & Menegatti, Mario, 2016. "Changing risks and optimal effort," Journal of Economic Behavior & Organization, Elsevier, vol. 125(C), pages 97-106.
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    Cited by:

    1. Hong, Jimin & Kim, Kyungsun & Seog, S. Hun, 2024. "Private efforts, public test policy and insurance against pandemic health risks," Pacific-Basin Finance Journal, Elsevier, vol. 85(C).
    2. Emmanuelle Augeraud-Véron & Marc Leandri, 2023. "Optimal self-protection and health risk perception: bridging the gap between risk theory and the Health Belief Model," EconomiX Working Papers 2023-12, University of Paris Nanterre, EconomiX.
    3. Peter, Richard, 2021. "Prevention as a Giffen good," Economics Letters, Elsevier, vol. 208(C).
    4. P. Battiston & M. Menegatti, 2022. "Interaction in Prevention: A General Theory and an Application to COVID-19 Pandemic," Economics Department Working Papers 2022-EP02, Department of Economics, Parma University (Italy).

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