Risk Selection in Natural-Disaster Insurance

Authors: Jametti, Mario; von Ungern-Sternberg, Thomas

Source: Journal of Institutional and Theoretical Economics JITE, Volume 166, Number 2, June 2010 , pp. 344-364(21)

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Abstract:

It is widely recognized that market failure prevents efficient risk sharing in natural-disaster insurance, leading to several public-private partnership arrangements across the globe. We argue that risk selection by the private partner is potentially an important issue. We illustrate our concerns with a simple model of reinsurance in a natural-disaster insurance market, based on the French system. Risk selection is a likely equilibrium outcome. Notably, the policies implemented by the French government correspond to the ones we identify to alleviate risk selection. Next, we discuss two public-private partnership settings that deal effectively with risk selection: Florida and Spain.

Document Type: Research article

DOI: http://dx.doi.org/10.1628/093245610791343021

Publication date: 2010-06-01

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Founded as Zeitschrift f�r die gesamte Staatswissenschaft in 1844.

As one of the oldest journals in the field of political economy, the Journal of Institutional and Theoretical Economics (JITE) deals traditionally with the problems of economics, social policy, and their legal framework. JITE is listed in the Journal of Economic Literature, the Social Science Citation Index, the International Bibliography of the Social Sciences, and COREJ.
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