Insurance Demand for Disaster-type Risks and the Separation of Attitudes toward Risk and Ambiguity: an Experimental Study

Marielle Brunette (), Laure Cabantous, Stéphane Couture and Anne Stenger ()
Additional contact information
Laure Cabantous: Nottingham University Business School

No 2008-05, Working Papers - Cahiers du LEF from Laboratoire d'Economie Forestiere, AgroParisTech-INRA

Abstract: This article presents the results of an experiment designed to test theoretical predictions about the impact of public compensation schemes and ambiguity on insurance and self-insurance decisions. Consistent with theory, we find that government assistance significantly reduces willingness to pay (WTP) for insurance and self-insurance (compared with a free insurance market). As expected, we also find significant differences between WTPs for insurance under different types of government compensation programs. For example, results from our experiment confirm the prediction that the WTP for insurance is smaller under a “Fixed Help” program than under a “Contingent Fixed Help” program where the government assistance is conditioned to the purchase of an insurance policy. Thirdly, we find that ambiguity, i.e., uncertainty about probability, significantly increases WTPs for insurance. This result, which indicates that decision-makers are ambiguity averse, is in line with previous results on the impact of ambiguity on insurance demand for low probability risks. Lastly, our experiment provides a clear support for the hypothesis that attitude to risk and attitude to ambiguity are two independent phenomena. In fact in this experiment, decision-makers are both risk-seekers (i.e., the mean WTP for insurance is on average smaller than the expected value of the loss) and ambiguity averse (i.e., the mean WTP for insurance is on average higher for an ambiguous risk than for a ’risky’ risk).

Keywords: Experimental Economics; Insurance; Self-Insurance; Public Policy; Forest; Ambiguity; Risk (search for similar items in EconPapers)
JEL-codes: C91 D81 Q23 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2008-10
New Economics Papers: this item is included in nep-agr, nep-cbe, nep-exp, nep-ias and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.nancy.inra.fr/lef/content/download/2902 ... doc_LEF_n2008-05.pdf First version, 2008 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.nancy.inra.fr/lef/content/download/2902/28843/version/1/file/doc_LEF_n2008-05.pdf [301 Moved Permanently]--> https://www.nancy.inra.fr/lef/content/download/2902/28843/version/1/file/doc_LEF_n2008-05.pdf [301 Moved Permanently]--> https://www.inrae.fr/centres/grand-est-nancy/lef/content/download/2902/28843/version/1/file/doc_LEF_n2008-05.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lef:wpaper:2008-05

Access Statistics for this paper

More papers in Working Papers - Cahiers du LEF from Laboratoire d'Economie Forestiere, AgroParisTech-INRA Contact information at EDIRC.
Bibliographic data for series maintained by Sylvain CAURLa ( this e-mail address is bad, please contact ).