On how access to an insurance market affects investments in safety measures, based on the expected utility theory

Eirik Bjorheim Abrahamsen and Frank Asche

Reliability Engineering and System Safety, 2011, vol. 96, issue 3, 361-364

Abstract: This paper focuses on how access to an insurance market should influence investments in safety measures in accordance with the ruling paradigm for decision-making under uncertainty—the expected utility theory. We show that access to an insurance market in most situations will influence investments in safety measures. For an expected utility maximizer, an overinvestment in safety measures is likely if access to an insurance market is ignored, while an underinvestment in safety measures is likely if insurance is purchased without paying attention to the possibility for reducing the probability and/or consequences of an accidental event by safety measures.

Keywords: Insurance; Safety measures; Expected utility theory (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reensy:v:96:y:2011:i:3:p:361-364

DOI: 10.1016/j.ress.2010.10.004

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