Self-protection and insurance with interdependencies

  • We study optimal investment in self-protection of insured individuals when they face interdependencies in the form of potential contamination from others. If individuals cannot coordinate their actions, then the positive externality of investing in self-protection implies that, in equilibrium, individuals underinvest in self-protection. Limiting insurance coverage through deductibles or selling “at-fault” insurance can partially internalize this externality and thereby improve individual and social welfare. JEL Classification: C72, D62, D80

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Author:Howard Kunreuther, Alexander Muermann
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2007,22
Series (Serial Number):CFS working paper series (2007, 22)
Document Type:Working Paper
Year of Completion:2007
Year of first Publication:2007
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2007/06/13
Tag:externality; insurance; mitigation
GND Keyword:Privater; Versicherungsschutz
Issue:May 30, 2007
Page Number:27
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht