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Entropy Characterisation of Insurance Demand: Theory and Evidence

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  • NAKATA Hiroyuki
  • SAWADA Yasuyuki
  • TANAKA Mari

Abstract

This paper characterises the insurance demand in terms of the entropy of the underlying probability distribution for losses. A characterisation of this nature provides the prediction that insurance for large losses with small probabilities tends to be purchased less frequently than insurance for moderate losses with higher probabilities, without deviating from the standard expected utility framework. The predictions of the theoretical model are tested empirically using household data collected in Vietnam.

Suggested Citation

  • NAKATA Hiroyuki & SAWADA Yasuyuki & TANAKA Mari, 2010. "Entropy Characterisation of Insurance Demand: Theory and Evidence," Discussion papers 10009, Research Institute of Economy, Trade and Industry (RIETI).
  • Handle: RePEc:eti:dpaper:10009
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    File URL: https://www.rieti.go.jp/jp/publications/dp/10e009.pdf
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    Cited by:

    1. Matsuda, Ayako & Kurosaki, Takashi & Sawada, Yasuyuki, 2013. "Rainfall and Temperature Index Insurance in India: Project Documentation," PRIMCED Discussion Paper Series 34, Institute of Economic Research, Hitotsubashi University.
    2. Sawada, Yasuyuki & Takasaki, Yoshito, 2017. "Natural Disaster, Poverty, and Development: An Introduction," World Development, Elsevier, vol. 94(C), pages 2-15.
    3. Yoshifumi Fukunaga & Ponciano Intal & Fukunari Kimura & Phoumin Han & Philippa Dee & Narjoko Dionisius & OUM Sothea, . "ASEAN Rising: ASEAN and AEC Beyond 2015," Books, Economic Research Institute for ASEAN and East Asia (ERIA), number 2013-rpr-01 edited by Yoshifumi Fukunaga & Ponciano Intal, Jr. & Fukunari Kimura & Phoumin Han & Philippa Dee & Narjoko Di.

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