Self-Protection and Insurance With Interdependencies
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Operations, Information and Decisions Papers
Degree type
Discipline
Subject
insurance
self-protection
interdependencies
externality
Economic Theory
Insurance
Other Economics
self-protection
interdependencies
externality
Economic Theory
Insurance
Other Economics
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Author
Muermann, Alexander
Kunreuther, Howard
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Abstract
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.
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Publication date
2008-04-01
Journal title
Journal of Risk and Uncertainty