Free riding and insurer carbon-linked investment

Fu-Wei Huang, Shi Chen and Jyh-Horng Lin

Energy Economics, 2022, vol. 107, issue C

Abstract: The paper develops a two-insurer contingent claim framework to evaluate their equities. One insurer conducts carbon-linked investment, while the other conducts conventional (non-carbon-linked) investment. The free-riding issue becomes essential because of the carbon-emission externality. We show that the life insurance policyholders are free riders when either the return of carbon-linked or the conventional investment increases. But the cost burden of policyholder protection is the reduced insurer interest margin. The results also apply to the increased carbon-linked investment volatility and the different coronavirus COVID-19 impacts on the two-insurer interest margins. In the soundness test, we show that insurance stability at the cost of insurer profits is less significant when the carbon-linked investor's barrier increases. Free riding would be intimately relevant to insurance and carbon-emission environments in the barrier option model.

Keywords: Free riding; Carbon-linked investment; Carbon emission; Insurer interest margin; Policyholder (search for similar items in EconPapers)
JEL-codes: G22 Q51 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:107:y:2022:i:c:s0140988322000263

DOI: 10.1016/j.eneco.2022.105838

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