Resource title

Self-Insurance and Self-Protection as Public Goods

Resource image

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Resource description

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.

Resource author

Tim Lohse, Julio R. Robledo, Ulrich Schmidt

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/22466

Resource license

Adapt according to the presented license agreement and reference the original author.