Date of this Version
Journal of Risk and Uncertainty
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.
The final publication is available at Springer via http://dx.doi.org/10.1007/s11166-008-9033-1The final publication is available at Springer via http://dx.doi.org/10.1007/s10957-009-9524-5
insurance, self-protection, interdependencies, externality
Muermann, A., & Kunreuther, H. (2008). Self-Protection and Insurance With Interdependencies. Journal of Risk and Uncertainty, 36 (2), 103-123. http://dx.doi.org/10.1007/s11166-008-9033-1
Date Posted: 27 November 2017
This document has been peer reviewed.