Economics at your fingertips  

Underinsurance Caused by Uninsurable Losses in the Public Goods and Personal Assets

Fan-chin Kung () and Haiyong Liu ()
Additional contact information
Fan-chin Kung: Department of Economics, East Carolina University
Haiyong Liu: Department of Economics, East Carolina University

Review of Economics & Finance, 2019, vol. 15, 14-22

Abstract: A significant portion of flood damages were not covered by insurance, and policies are devised to promote insurance coverage. There are, however, rational reasons for why households may not purchase full insurance facing risks. We discuss optimal underinsurance when there are uninsurable losses in the public goods or personal assets. In a first-best allocation, households will fully restore the damaged public goods after a natural hazard and purchase full insurance. When public goods restoration is not available, the Samuelson condition holds in expected utility, and households purchase insurance less than their wealth loss. Also, when there are uninsurable losses in personal assets, that optimal insurance purchase is less than the wealth loss. We provide a model based on households' choices of coverage and deductibles in insurance purchases. This model can be used to estimate households' risk preferences towards natural hazards.

Keywords: Underinsurance; Flood insurance; Public goods and risk; Estimating risk preferences; Uninsurable loss (search for similar items in EconPapers)
JEL-codes: D81 H44 G22 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) ... Assets-proofread.pdf (application/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:

Ordering information: This journal article can be ordered from
17 Alton Towers Circle, Unit 101 Toronto, ON, M1V3L8, Canada

Access Statistics for this article

Review of Economics & Finance is currently edited by H. Carlson

More articles in Review of Economics & Finance from Better Advances Press, Canada 17 Alton Towers Circle, Unit 101 Toronto, ON, M1V3L8, Canada.
Bibliographic data for series maintained by Carlson ().

Page updated 2019-03-30
Handle: RePEc:bap:journl:190102