Post by Sapphire Capital on Jul 22, 2008 21:36:56 GMT 4
Natural Disaster Insurance and the Equity-Efficiency Trade-Off
PIERRE PICARD
Ecole Polytechnique, Paris - Department of Economic Sciences
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Journal of Risk & Insurance, Vol. 75, Issue 1, pp. 17-38, March 2008
Abstract:
This article investigates the role of private insurance in the prevention and mitigation of natural disasters. We characterize the equity-efficiency trade-off faced by the policymakers under imperfect information about individual prevention costs. It is shown that a competitive insurance market with actuarial rate making and compensatory tax-subsidy transfers is likely to dominate regulated uniform insurance pricing rules or state-funded assistance schemes. The model illustrates how targeted tax cuts on insurance contracts can improve the incentives to prevention while compensating individuals with high prevention costs. The article highlights the complementarity between individual incentives through tax cuts and collective incentives through grants to the local jurisdictions where risk management plans are enforced
papers.ssrn.com/sol3/papers.cfm?abstract_id=1103697
PIERRE PICARD
Ecole Polytechnique, Paris - Department of Economic Sciences
--------------------------------------------------------------------------------
Journal of Risk & Insurance, Vol. 75, Issue 1, pp. 17-38, March 2008
Abstract:
This article investigates the role of private insurance in the prevention and mitigation of natural disasters. We characterize the equity-efficiency trade-off faced by the policymakers under imperfect information about individual prevention costs. It is shown that a competitive insurance market with actuarial rate making and compensatory tax-subsidy transfers is likely to dominate regulated uniform insurance pricing rules or state-funded assistance schemes. The model illustrates how targeted tax cuts on insurance contracts can improve the incentives to prevention while compensating individuals with high prevention costs. The article highlights the complementarity between individual incentives through tax cuts and collective incentives through grants to the local jurisdictions where risk management plans are enforced
papers.ssrn.com/sol3/papers.cfm?abstract_id=1103697