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Trust & Insurance Markets

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  • Luigi Guiso

    (EIEF)

Abstract

Trust is a key determinants of any financial transaction. Exchanges in insurance markets are a particular type of financial transaction where a current payment – the premium – is exchanged for a promise of a future, contingent payment – the indemnity due when the casualty occurs. We argue that trust is key in fostering these type of exchanges. Trust enters two ways: because it affects the willingness of the company to supply insurance when the insured can cheat by claiming indemnities that are not due. Because it discourages people from purchasing insurance if they do not trust the company's promise of readily paying the indemnity when due. We prove theoretically and empirically the relevance of trust in insurance exchanges and discuss policies to foster it.

Suggested Citation

  • Luigi Guiso, 2012. "Trust & Insurance Markets," EIEF Working Papers Series 1207, Einaudi Institute for Economics and Finance (EIEF), revised Jul 2012.
  • Handle: RePEc:eie:wpaper:1207
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    File URL: http://www.eief.it/files/2012/09/wp-07-trust-insurance-markets.pdf
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    References listed on IDEAS

    as
    1. Francois, Patrick & Fujiwara, Thomas & van Ypersele, Tanguy, 2009. "Competition Builds Trust," Economics working papers patrick_francois-2009-65, Vancouver School of Economics, revised 02 Dec 2009.
    2. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2004. "The Role of Social Capital in Financial Development," American Economic Review, American Economic Association, vol. 94(3), pages 526-556, June.
    3. Jeff Butler & Paola Giuliano & Luigi Guiso, 2016. "Trust and Cheating," Economic Journal, Royal Economic Society, vol. 126(595), pages 1703-1738, September.
    4. Iris Bohnet & Fiona Greig & Benedikt Herrmann & Richard Zeckhauser, 2008. "Betrayal Aversion: Evidence from Brazil, China, Oman, Switzerland, Turkey, and the United States," American Economic Review, American Economic Association, vol. 98(1), pages 294-310, March.
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    Cited by:

    1. Delis, Manthos D. & Mylonidis, Nikolaos, 2015. "Trust, happiness, and households’ financial decisions," Journal of Financial Stability, Elsevier, vol. 20(C), pages 82-92.
    2. Jin, Dawei & Wang, Haizhi & Wang, Peng & Yin, Desheng, 2016. "Social trust and foreign ownership: Evidence from qualified foreign institutional investors in China," Journal of Financial Stability, Elsevier, vol. 23(C), pages 1-14.

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