Operations, Information and Decisions Papers

Document Type

Journal Article

Date of this Version

4-2008

Publication Source

Journal of Risk and Uncertainty

Volume

36

Issue

2

Start Page

103

Last Page

123

DOI

10.1007/s11166-008-9033-1

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.

Copyright/Permission Statement

The final publication is available at Springer via http://dx.doi.org/10.1007/s11166-008-9033-1

The final publication is available at Springer via http://dx.doi.org/10.1007/s10957-009-9524-5

Keywords

insurance, self-protection, interdependencies, externality

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Date Posted: 27 November 2017

This document has been peer reviewed.