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Some Aspects of the Economics of Catastrophe Risk Insurance

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  • Christian Gollier

Abstract

The ability to share risk efficiently in the economy is essential to welfare and growth. However, the increased frequency of natural catastrophes over the last decade has raised once again questions associated to the limits of insurability in a free-market economy, and to the relevance of public interventions on risk-sharing markets. In this paper, we explore the potential reasons for the lack of insurance specifically associated to catastrophe environmental risks. Our final aim is to link each source of possible market inefficiency to its possible remedies.

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  • Christian Gollier, 2005. "Some Aspects of the Economics of Catastrophe Risk Insurance," CESifo Working Paper Series 1409, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_1409
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp1409.pdf
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    References listed on IDEAS

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    1. Kunreuther, Howard & Hogarth, Robin & Meszaros, Jacqueline, 1993. "Insurer Ambiguity and Maarket Failure," Journal of Risk and Uncertainty, Springer, vol. 7(1), pages 71-87, August.
    2. Geoffrey Heal & Howard Kunreuther, 2003. "You Only Die Once: Managing Discrete Interdependent Risks," NBER Working Papers 9885, National Bureau of Economic Research, Inc.
    3. Deaton, Angus, 1991. "Saving and Liquidity Constraints," Econometrica, Econometric Society, vol. 59(5), pages 1221-1248, September.
    4. Christian Gollier, 2003. "To Insure or Not to Insure?: An Insurance Puzzle," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 28(1), pages 5-24, June.
    5. Boyer, Marcel & Laffont, Jean-Jacques, 1997. "Environmental risks and bank liability," European Economic Review, Elsevier, vol. 41(8), pages 1427-1459, August.
    6. Christian Gollier, 2004. "The Economics of Risk and Time," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262572249, January.
    7. Baxter, Marianne & Jermann, Urban J, 1997. "The International Diversification Puzzle Is Worse Than You Think," American Economic Review, American Economic Association, vol. 87(1), pages 170-180, March.
    8. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    9. Eeckhoudt, L. & Gollier, C., 1996. "The Insurance of Low Probability Events," Papers 976.423, Toulouse - GREMAQ.
    10. GOLLIER, Ch., 1985. "Pareto-optimal risk sharing with fixed costs per claim," CORE Discussion Papers 1985046, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    11. Raviv, Artur, 1979. "The Design of an Optimal Insurance Policy," American Economic Review, American Economic Association, vol. 69(1), pages 84-96, March.
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    Cited by:

    1. Mario JAMETTI & Thomas VON UNGERN-STERNBERG, 2006. "Risk Selection in Natural Disaster Insurance -The Case of France," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 06.02, Université de Lausanne, Faculté des HEC, DEEP.
    2. Matthias Schmidt & Hermann Held & Elmar Kriegler & Alexander Lorenz, 2013. "Climate Policy Under Uncertain and Heterogeneous Climate Damages," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 54(1), pages 79-99, January.
    3. Zhu, Wenge, 2011. "Ambiguity aversion and an intertemporal equilibrium model of catastrophe-linked securities pricing," Insurance: Mathematics and Economics, Elsevier, vol. 49(1), pages 38-46, July.
    4. Mario Jametti & Thomas von Ungern-Sternberg, 2010. "Risk Selection in Natural-Disaster Insurance," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 166(2), pages 344-364, June.
    5. Mario Jametti & Thomas von Ungern-Sternberg, 2009. "Hurricane Insurance in Florida," Quaderni della facoltà di Scienze economiche dell'Università di Lugano 0905, USI Università della Svizzera italiana.
    6. Feduzi, Alberto & Runde, Jochen, 2011. "The uncertain foundations of the welfare state," Journal of Economic Behavior & Organization, Elsevier, vol. 80(3), pages 613-627.
    7. Véronique Bruggeman & Michael G. Faure & Miriam Haritz, 2008. "Schadensersatz für Opfer von Naturkatastrophen: ein Vergleich zwischen Belgien und den Niederlanden," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 77(4), pages 18-43.
    8. Rodrigo S. Targino & Gareth W. Peters & Georgy Sofronov & Pavel V. Shevchenko, 2013. "Optimal insurance purchase strategies via optimal multiple stopping times," Papers 1312.0424, arXiv.org.

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