An Economic Analysis of Compulsory and Voluntary Insurance

Kazuhiko Sakai () and Mahito Okura ()
Additional contact information
Kazuhiko Sakai: Kurume University

International Journal of Academic Research in Accounting, Finance and Management Sciences, 2012, vol. 2, issue 2, 1-8

Abstract: This research analyzes an insurance market in which compulsory and voluntary insurance coexist. In particular, we investigate whether compulsory insurance provides an incentive to purchase voluntary insurance. The main conclusions of this article are as follows. When only voluntary insurance exists, we find that (1) an individual has a stronger incentive to purchase insurance when his or her future utility is high, (2) whether an individual’s incentive to purchase insurance becomes stronger when his or her initial wealth increases is ambiguous, and (3) an individual’s incentive to purchase insurance tends to become stronger when his or her initial wealth increases if both effort levels to lower the accident probabilities of individual in the case of higher and lower insurance coverage rates are relatively high. When both insurance coexist, we find that (1) when the compulsory insurance coverage rate is relatively low such that an individual may become personally bankrupt, introducing compulsory insurance increases the incentive to purchase voluntary insurance, (2) an increase in the coverage rate of compulsory insurance increases the incentive to purchase voluntary insurance when the compulsory insurance coverage rate is relatively low, and (3) when the compulsory insurance coverage rate is relatively high such that an individual never becomes personally bankrupt, introducing compulsory insurance does not provide an incentive to purchase voluntary insurance.

Keywords: Compulsory insurance; voluntary insurance; economic analysis; incentive (search for similar items in EconPapers)
JEL-codes: G22 O31 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.hrmars.com/admin/pics/670.pdf (application/pdf)
http://www.hrmars.com/admin/pics/670.pdf (text/html)

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:hur:ijaraf:v:2:y:2012:i:2:p:1-8

Access Statistics for this article

More articles in International Journal of Academic Research in Accounting, Finance and Management Sciences from Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences
Bibliographic data for series maintained by Hassan Danial Aslam ().