Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/22466
Authors: 
Lohse, Tim
Robledo, Julio R.
Schmidt, Ulrich
Year of Publication: 
2006
Series/Report no.: 
Diskussionspapiere des Fachbereichs Wirtschaftswissenschaften, Universität Hannover 354
Abstract: 
Many public goods like dams, fire departments, and lighthouses do not provide direct utility but act more as insurance devices against floods, fire, and shipwreck. They either diminish the probability or the size of the loss. We extend the public good model with this insurance aspect and generalize Samuelson?s efficient allocation rule when self-insurance and self-protection expenditures are pure public goods. Some comparative static results with respect to changes in income and risk behavior are derived. As some of the sketched risks are insurable while some others are not, we introduce further the possibility of risk coverage by private market insurance. We analyze the interaction of such an insurance with the public good level, both for efficient provision and for private provision equilibria. It turns out that the levels of self-insurance and self-protection decrease when being privately provided. Moreover, it appears a strategic substitutability between the public good and market insurance which leads to an additional decline of the provision levels.
Subjects: 
Self-insurance
self-protection
efficient provision of public goods
private provision of public goods
market insurance
JEL: 
H41
G22
Document Type: 
Working Paper

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