Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/56051
Authors: 
Lohse, Tim
Robledo, Julio R.
Year of Publication: 
2012
Series/Report no.: 
WZB Discussion Paper SP II 2012-103
Abstract: 
Motivated by recent disasters, this paper analyzes the risk sharing aspect in a federation. The regions can be hit by a shock leading to losses that occur with an exogenous probability and in a stochastically independent way. The regions can spend effort on selfinsurance to reduce the size of the loss. Being part of a federation has two countervailing -elfare effects. On the one hand, there is the well known welfare increase due to risk pooling. On the other hand, the self-insurance effort is a public good, because all regions benefit from the reduction of the loss. There exists a Samaritan's dilemma kind of effect whereby regions reduce their self-insurance effort potentially leading to an overall welfare decrease. The central government can solve this dilemma by committing to fixed rather than variable transfers. This induces regions that behave non-cooperatively to still choose the efficient level of self-insurance effort.
Subjects: 
intergovernmental transfers
self-insurance
disaster policy
JEL: 
H77
H41
H72
Document Type: 
Working Paper

Files in This Item:
File
Size
248.97 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.