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Universität Hamburg (UHH) >
Hamburger Zentrum für Versicherungswissenschaft (HZV) - Institut für Versicherungsbetriebslehre, Universität Hamburg >
Working Papers on Risk and Insurance, Institut für Versicherungsbetriebslehre, Universität Hamburg >
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http://hdl.handle.net/10419/54208
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| Title: | | Internalizing externalities of loss-prevention through insurance monopoly: An analysis of interdependent risks  |
| Authors: | | Hofmann, Annette |
| Issue Date: | | 2005 |
| Series/Report no.: | | Working Papers on Risk and Insurance 16 |
| Abstract: | | When risks are interdependent, loss-prevention activities of one agent influence the risks faced by others. The social return to an investment in loss-prevention is greater than the private return. From a perspective of social welfare, the market allocation is not optimal and leads to under-investment in prevention allround. This article considers consumer welfare under conditions of interdependent risks and demonstrates that a monopolistic insurer can internalize the arising externalities by setting appropriate prevention incentives through insurance premiums. A monopoly insurance solution reduces not only costs of risk selection, but can also play an important role in loss-prevention. |
| Subjects: | | externalities insurance monopoly Nash equilibrium social welfare |
| JEL: | | C70 D62 G22 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Working Papers on Risk and Insurance, Institut für Versicherungsbetriebslehre, Universität Hamburg
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