IDEAS home Printed from https://ideas.repec.org/p/han/dpaper/dp-354.html
   My bibliography  Save this paper

Self-Insurance and Self-Protection as Public Goods

Author

Listed:
  • Lohse, Tim
  • Julio R. Robledo
  • Ulrich Schmidt

Abstract

Many public goods like dams, fire departments, and lighthouses do not provide direct utility but act more as insurance devices against floods, fire, and shipwreck. They either diminish the probability or the size of the loss. We extend the public good model with this insurance aspect and generalize Samuelson's efficient allocation rule when self-insurance and self-protection expenditures are pure public goods. Some comparative static results with respect to changes in income and risk behavior are derived. As some of the sketched risks are insurable while some others are not, we introduce further the possibility of risk coverage by private market insurance. We analyze the interaction of such an insurance with the public good level, both for efficient provision and for private provision equilibria. It turns out that the levels of self-insurance and self-protection decrease when being privately provided. Moreover, it appears a strategic substitutability between the public good and market insurance which leads to an additional decline of the provision levels.

Suggested Citation

  • 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.
  • Handle: RePEc:han:dpaper:dp-354
    as

    Download full text from publisher

    File URL: http://diskussionspapiere.wiwi.uni-hannover.de/pdf_bib/dp-354.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Rudolf Kerschbamer & Clemens Puppe, 1998. "Voluntary contributions when the public good is not necessarily normal," Journal of Economics, Springer, vol. 68(2), pages 175-192, June.
    2. Kaïs Dachraoui & Georges Dionne & Louis Eeckhoudt & Philippe Godfroid, 2004. "Comparative Mixed Risk Aversion: Definition and Application to Self-Protection and Willingness to Pay," Journal of Risk and Uncertainty, Springer, vol. 29(3), pages 261-276, December.
    3. Austen-Smith, David, 1980. "Individual contribution to public goods," Economics Letters, Elsevier, vol. 5(4), pages 359-361.
    4. 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, April.
    5. Warr, Peter G., 1983. "The private provision of a public good is independent of the distribution of income," Economics Letters, Elsevier, vol. 13(2-3), pages 207-211.
    6. Dionne, Georges & Eeckhoudt, Louis, 1985. "Self-insurance, self-protection and increased risk aversion," Economics Letters, Elsevier, vol. 17(1-2), pages 39-42.
    7. Richard Cornes & Roger Hartley & Todd Sandler, 1999. "Equilibrium Existence and Uniqueness in Public Good Models: An Elementary Proof via Contraction," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 1(4), pages 499-509, October.
    8. Yamauchi, Futoshi & Yohannes, Yisehac & Quisumbing, Agnes, 2009. "Natural disasters, self-insurance and human capital investment : evidence from Bangladesh, Ethiopia and Malawi," Policy Research Working Paper Series 4910, The World Bank.
    9. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
    10. MOSSIN, Jan, 1968. "Aspects of rational insurance purchasing," LIDAM Reprints CORE 23, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    11. 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.
    12. Wolfgang Buchholz & Wolfgang Peters, 2001. "The overprovision anomaly of private public good supply," Journal of Economics, Springer, vol. 74(1), pages 63-78, February.
    13. Kunreuther, Howard & Heal, Geoffrey, 2003. "Interdependent Security," Journal of Risk and Uncertainty, Springer, vol. 26(2-3), pages 231-249, March-May.
    14. Gradstein, M. & Nitzan, S. & Slutsky, S., 1990. "Private Provision Of Public Goods Under Price Uncertainty," Papers 90-2, Florida - College of Business Administration.
    15. Mary Kelly & Anne E. Kleffner, 2003. "Optimal Loss Mitigation and Contract Design," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 70(1), pages 53-72, March.
    16. Steven Shavell, 1979. "On Moral Hazard and Insurance," The Quarterly Journal of Economics, Oxford University Press, vol. 93(4), pages 541-562.
    17. Michael Breuer, 2005. "Multiple Losses, EX ANTE Moral Hazard, and the Implications for Umbrella Policies," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 72(4), pages 525-538, December.
    18. Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February.
    19. Alexander Muermann & Howard Kunreuther, 2008. "Self-protection and insurance with interdependencies," Journal of Risk and Uncertainty, Springer, vol. 36(2), pages 103-123, April.
    20. Lakdawalla, Darius & Zanjani, George, 2005. "Insurance, self-protection, and the economics of terrorism," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1891-1905, September.
    21. 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..
    22. Cornes, Richard & Sandler, Todd, 1984. "Easy Riders, Joint Production, and Public Goods," Economic Journal, Royal Economic Society, vol. 94(375), pages 580-598, September.
    23. Greg Kaplan & Giovanni L. Violante, 2010. "How Much Consumption Insurance beyond Self-Insurance?," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 53-87, October.
    24. Toshihiro Ihori & Martin McGuire, 2010. "National self-insurance and self-protection against adversity: bureaucratic management of security and moral hazard," Economics of Governance, Springer, vol. 11(2), pages 103-122, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Han Jiang & Aggey Simons, 2021. "Charitable Giving and NPOs Investment Decision in a Stochastic Dynamic Economy," Working Papers 2113E Classification-H41., University of Ottawa, Department of Economics.
    2. Köke, Sonja & Lange, Andreas & Nicklisch, Andreas, 2015. "Adversity is a school of wisdomː Experimental evidence on cooperative protection against stochastic losses," WiSo-HH Working Paper Series 22, University of Hamburg, Faculty of Business, Economics and Social Sciences, WISO Research Laboratory.
    3. Wen-Kai Wang & Christian-Oliver Ewald, 2010. "Dynamic voluntary provision of public goods with uncertainty: a stochastic differential game model," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 33(2), pages 97-116, November.
    4. Nicklisch, Andreas & Köke, Sonja & Lange, Andreas, 2016. "Is Adversity a School of Wisdom? Experimental Evidence on Cooperative Protection Against Stochastic Losses," VfS Annual Conference 2016 (Augsburg): Demographic Change 145716, Verein für Socialpolitik / German Economic Association.
    5. Salmai Qari & Tobias Börger & Tim Lohse & Jürgen Meyerhoff, 2023. "The Value of National Defense: Assessing Public Preferences for Defense Policy Options," CESifo Working Paper Series 10872, CESifo.
    6. François Salanié & Nicolas Treich, 2020. "Public and private incentives for self-protection," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 45(2), pages 104-113, September.
    7. Wing Yan Lee & Derrick W. H. Fung, 2021. "Optimal Effort on Self-Insurance-Cum-Protection: A New Analysis Using Yaari’s Dual Theory," Mathematics, MDPI, vol. 9(22), pages 1-12, November.
    8. Konrad, Kai A. & Thum, Marcel, 2012. "The role of economic policy in climate change adaptation," EIB Working Papers 2012/02, European Investment Bank (EIB).
    9. Lohse, Tim & Robledo, Julio R., 2012. "Public self-insurance and the Samaritan's dilemma in a federation," Discussion Papers, Research Professorship & Project "The Future of Fiscal Federalism" SP II 2012-103, WZB Berlin Social Science Center.
    10. Chiradip Chatterjee & Nafisa Halim & Pallab Mozumder, 2021. "Emission Tax, Health Insurance, and Information: A Mechanism Design for Reducing Energy Consumption and Emission Risk," Economics of Disasters and Climate Change, Springer, vol. 5(3), pages 465-480, October.
    11. Annette Hofmann & Casey Rothschild, 2019. "On the efficiency of self-protection with spillovers in risk," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 44(2), pages 207-221, September.
    12. Daniel R. Petrolia & Joonghyun Hwang & Craig E. Landry & Keith H. Coble, 2015. "Wind Insurance and Mitigation in the Coastal Zone," Land Economics, University of Wisconsin Press, vol. 91(2), pages 272-295.
    13. Tim Lohse & Julio R. Robledo, 2013. "Public Self-Insurance and the Samaritan’s Dilemma in a Federation," Public Finance Review, , vol. 41(1), pages 92-120, January.
    14. Vesa Kanniainen & Staffan Ringbom, 2015. "The Value of NATO Option for a New Member," CESifo Working Paper Series 5399, CESifo.
    15. Grislain-Letrémy, Céline, 2012. "Assurance et prévention des catastrophes naturelles et technologiques," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/9073 edited by Villeneuve, Bertrand.
    16. Heike Auerswald & Kai A. Konrad & Marcel Thum, 2018. "Adaptation, mitigation and risk-taking in climate policy," Journal of Economics, Springer, vol. 124(3), pages 269-287, July.
    17. Toshihiro Ihori & Martin McGuireb, 2008. "National Adversity: Managing Insurance and Protection," CIRJE F-Series CIRJE-F-554, CIRJE, Faculty of Economics, University of Tokyo.
    18. Toshihiro Ihori & Martin McGuire, 2006. "Patterns of Non-exponential Growth of Macroeconomic Models: Two-parameter Poisson-Dirichlet Models," CIRJE F-Series CIRJE-F-450, CIRJE, Faculty of Economics, University of Tokyo.
    19. Biener, Christian & Eling, Martin & Landmann, Andreas & Pradhan, Shailee, 2018. "Can group incentives alleviate moral hazard? The role of pro-social preferences," European Economic Review, Elsevier, vol. 101(C), pages 230-249.
    20. Traub, Stefan, 2006. "The Provision of Local Public Services in a Risky Environment: An Application to Crime," Economics Working Papers 2006-03, Christian-Albrechts-University of Kiel, Department of Economics.
    21. Fraser, Clive D., 2021. "Protection in numbers? Self-protection as a local public good," Journal of Mathematical Economics, Elsevier, vol. 96(C).
    22. Doncaster, C. Patrick & Tavoni, Alessandro & Dyke, James G., 2017. "Using Adaptation Insurance to Incentivize Climate-change Mitigation," Ecological Economics, Elsevier, vol. 135(C), pages 246-258.
    23. Toshihiro Ihori & Martin McGuire, 2006. "Group Provision Against Adversity: Security By Insurance vs. Protection," CARF F-Series CARF-F-086, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    24. Pan, Chen-Yu, 2020. "Protections from natural disasters as local public goods: Migration and local adaptations," Regional Science and Urban Economics, Elsevier, vol. 85(C).
    25. Abrahamsen, Eirik Bjorheim & Asche, Frank, 2011. "On how access to an insurance market affects investments in safety measures, based on the expected utility theory," Reliability Engineering and System Safety, Elsevier, vol. 96(3), pages 361-364.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dionne, Georges & Harrington, Scott, 2017. "Insurance and Insurance Markets," Working Papers 17-2, HEC Montreal, Canada Research Chair in Risk Management.
    2. Toshihiro Ihori & Martin McGuireb, 2008. "National Adversity: Managing Insurance and Protection," CIRJE F-Series CIRJE-F-554, CIRJE, Faculty of Economics, University of Tokyo.
    3. Jindapon, Paan, 2013. "Do risk lovers invest in self-protection?," Economics Letters, Elsevier, vol. 121(2), pages 290-293.
    4. 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, April.
    5. Tim Lohse & Julio R. Robledo, 2013. "Public Self-Insurance and the Samaritan’s Dilemma in a Federation," Public Finance Review, , vol. 41(1), pages 92-120, January.
    6. Loïc Berger, 2011. "Does Ambiguity Aversion Raise the Optimal Level of Effort? A Two-Period Model," Working Papers ECARES ECARES 2011-021, ULB -- Universite Libre de Bruxelles.
    7. Lohse, Tim & Robledo, Julio R., 2012. "Public self-insurance and the Samaritan's dilemma in a federation," Discussion Papers, Research Professorship & Project "The Future of Fiscal Federalism" SP II 2012-103, WZB Berlin Social Science Center.
    8. Biener, Christian & Eling, Martin & Landmann, Andreas & Pradhan, Shailee, 2018. "Can group incentives alleviate moral hazard? The role of pro-social preferences," European Economic Review, Elsevier, vol. 101(C), pages 230-249.
    9. Lu Li & Richard Peter, 2021. "Should we do more when we know less? The effect of technology risk on optimal effort," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 88(3), pages 695-725, September.
    10. Bandyopadhyay, Subhayu & Sandler, Todd, 2021. "Counterterrorism policy: Spillovers, regime solidity, and corner solutions," Journal of Economic Behavior & Organization, Elsevier, vol. 188(C), pages 811-827.
    11. David Crainich & Louis Eeckhoudt & James Hammitt, 2015. "The value of risk reduction: new tools for an old problem," Theory and Decision, Springer, vol. 79(3), pages 403-413, November.
    12. Köke, Sonja & Lange, Andreas & Nicklisch, Andreas, 2015. "Adversity is a school of wisdomː Experimental evidence on cooperative protection against stochastic losses," WiSo-HH Working Paper Series 22, University of Hamburg, Faculty of Business, Economics and Social Sciences, WISO Research Laboratory.
    13. Louis Eeckhoudt & Liqun Liu & Jack Meyer, 2017. "Restricted increases in risk aversion and their application," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 64(1), pages 161-181, June.
    14. Chuang, O-Chia & Eeckhoudt, Louis & Huang, Rachel J. & Tzeng, Larry Y., 2013. "Risky targets and effort," Insurance: Mathematics and Economics, Elsevier, vol. 52(3), pages 465-468.
    15. Heike Auerswald & Kai A. Konrad & Marcel Thum, 2018. "Adaptation, mitigation and risk-taking in climate policy," Journal of Economics, Springer, vol. 124(3), pages 269-287, July.
    16. Toshihiro Ihori & Martin McGuire, 2006. "Patterns of Non-exponential Growth of Macroeconomic Models: Two-parameter Poisson-Dirichlet Models," CIRJE F-Series CIRJE-F-450, CIRJE, Faculty of Economics, University of Tokyo.
    17. Brunette, Marielle & Jacob, Julien, 2019. "Risk aversion, prudence and temperance: An experiment in gain and loss," Research in Economics, Elsevier, vol. 73(2), pages 174-189.
    18. Bardey, David & De Donder, Philippe, 2013. "Genetic testing with primary prevention and moral hazard," Journal of Health Economics, Elsevier, vol. 32(5), pages 768-779.
    19. François Pannequin & Anne Corcos & Claude Montmarquette, 2016. "Behavioral foundations of the substitutability between insurance and self-insurance: An experimental study," CIRANO Working Papers 2016s-12, CIRANO.
    20. Toshihiro Ihori & Martin McGuire, 2006. "Group Provision Against Adversity: Security By Insurance vs. Protection," CARF F-Series CARF-F-086, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.

    More about this item

    Keywords

    self-insurance; self-protection; efficient provision of public goods; private provision of public goods; market insurance;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:han:dpaper:dp-354. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Heidrich, Christian (email available below). General contact details of provider: https://edirc.repec.org/data/fwhande.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.