Group Provision Against Adversity: Security By Insurance vs. Protection
We investigate the structure of interactions among countries exercising voluntary uncoordinated choice but sharing a common "risk profile" --- a vector comprised of chance of adversity/emergency and magnitude of loss under adversity/emergency. We use the term "emergency costs" to refer to the vector and/or its components. Countries strive to reduce emergency costs (a) by providing mutual self-insurance against loss and (b) mutual self-protection against risk. Because of their common risk profile each country's security spending whether on self-insurance or on self-protection provides a public good (pure or impure) to all in the group --- hence our term "mutual." We show that under expected utility maximization the normality or inferiority of such public goods depends crucially on hitherto unrecognized interactions between preference functions and status quo risks. Moreover we discover that these interactions differ systematically between insurance and protection with important policy implications for comparing the two instruments. Furthermore, we demonstrate that configurations where security is inferior are not at all unlikely. In such case the provision of international public goods can easily face an endogenous obstacle, an "inferior good barrier," under Nash-Cournot behavior and under Leader-Follower behavior with Stackelberg outcomes. (These, however, display novel and desirable properties even when the public good is inferior.) When improvements in risk profile generate not pure public goods, but instead imperfect, ambiguous, or even negative benefits among partners, who is an ally and who an adversary, itself becomes ambiguous. For this configuration where the emergency risk profile differs among allies, we show how spillovers from emergency cost reduction and their effects on welfare will be depend critically on the sign of income effects.
|Date of creation:||Nov 2006|
|Contact details of provider:|| Postal: Hongo 7-3-1, Bunkyo-ku, Tokyo 113-0033|
Web page: http://www.carf.e.u-tokyo.ac.jp/english/
More information through EDIRC
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.:
- Alberto Alesina & Enrico Spolaore, 1995.
"On the Number and Size of Nations,"
NBER Working Papers
5050, National Bureau of Economic Research, Inc.
- Roger Hartley & Richard Cornes, 2003.
"Aggregative Public Good Games,"
Keele Economics Research Papers
KERP 2003/05, Centre for Economic Research, Keele University.
- Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-648, July-Aug..
- McGuire, Martin C & Pratt, John & Zeckhauser, Richard, 1991. "Paying to Improve Your Chances: Gambling or Insurance?," Journal of Risk and Uncertainty, Springer, vol. 4(4), pages 329-338, December.
- Vicary, Simon, 1990. "Transfers and the weakest-link : An extension of Hirshleifer's analysis," Journal of Public Economics, Elsevier, vol. 43(3), pages 375-394, December.
- Alberto Alesina & Roberto Perotti, 1995.
"Economic Risk and Political Risk in Fiscal Unions,"
NBER Working Papers
4992, National Bureau of Economic Research, Inc.
- Toshihiro Ihori & Martin C. McGuire, 2006.
"Collective Risk Control And Group Security: The Unexpected Consequences of Differential Risk Aversion,"
CARF-F-060, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
- TOSHIHIRO IHORI & MARTIN C. McGUIRE, 2007. "Collective Risk Control and Group Security: The Unexpected Consequences of Differential Risk Aversion," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(2), pages 231-263, 04.
- Toshihiro Ihori & Martin C. McGuire, 2006. "Collective Risk Control And Group Security: The Unexpected Consequences of Differential Risk Aversion," CIRJE F-Series CIRJE-F-402, CIRJE, Faculty of Economics, University of Tokyo.
- Schmidt, Ulrich & Robledo, Julio R. & Lohse, Tim, 2007.
"Self-Insurance and Self-Protection as Public Goods,"
Economics Working Papers
2007,16, Christian-Albrechts-University of Kiel, Department of Economics.
- Tim Lohse & Julio R. Robledo & Ulrich Schmidt, 2012. "Self‐Insurance and Self‐Protection as Public Goods," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 79(1), pages 57-76, 03.
- Ulrich Schmidt, 2010. "Self-Insurance and Self-Protection as Public Goods," Kiel Working Papers 1613, Kiel Institute for the World Economy.
- Lohse, Tim & Julio R. Robledo & Ulrich Schmidt, 2006. "Self-Insurance and Self-Protection as Public Goods," Hannover Economic Papers (HEP) dp-354, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
- Lohse, Tim & Robledo, Julio & Schmidt, Ulrich, 2010. "Self-Insurance and Self-Protection as Public Goods," Kiel Working Papers 1613, Kiel Institute for the World Economy (IfW).
- Andreoni, James & McGuire, Martin C., 1993.
"Identifying the free riders : A simple algorithm for determining who will contribute to a public good,"
Journal of Public Economics,
Elsevier, vol. 51(3), pages 447-454, July.
- McGuire, M.C. & Andreoni, J., 1991. "Identifying the Free Riders: A Simple Algorithm for Determining who will Contribute to Public Good," Papers 90-92-03, California Irvine - School of Social Sciences.
- Boadway, Robin & Hayashi, Masayoshi, 1999. "Country size and the voluntary provision of international public goods," European Journal of Political Economy, Elsevier, vol. 15(4), pages 619-638, November.
- McGuire, M., 2000. "Provision for Adversity: Managing Supply Uncertainties in an Era of Globalization," Papers 99-00-16, California Irvine - School of Social Sciences.
- Vicary, Simon & Sandler, Todd, 2002. "Weakest-link public goods: Giving in-kind or transferring money," European Economic Review, Elsevier, vol. 46(8), pages 1501-1520, September.
- Ihori Toshihiro, 1994. "Economic Integration of Countries with International Public Goods," Journal of the Japanese and International Economies, Elsevier, vol. 8(4), pages 530-550, December.
- Martin McGuire, 2006. "Uncertainty, Risk Aversion, And Optimal Defense Against Interruptions In Supply," Defence and Peace Economics, Taylor & Francis Journals, vol. 17(4), pages 287-309.
When requesting a correction, please mention this item's handle: RePEc:cfi:fseres:cf086. 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: ()
If references are entirely missing, you can add them using this form.