Social distancing game and insurance investment in a pandemic

Hamed Amini () and Andreea Minca ()
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Hamed Amini: University of Florida
Andreea Minca: Cornell University

Annals of Operations Research, 2024, vol. 336, issue 3, No 25, 2009-2036

Abstract: Abstract We consider a heterogeneous Susceptible–Infected–Recovered epidemic model, calibrated to the COVID-19 pandemic characteristics. We study the equilibrium of a voluntary social distancing game on a network of individuals subject to epidemic risk. We quantify the absolute and relative utility gaps across age cohorts. We further introduce life insurance in the model, which serves to mitigate the loss in the severe individual outcomes. We find that in most cases, insurance decreases the risk of contagion in the network because more individuals can be incentivized to self-isolate. On the other hand, in the case when the insurer does not have sufficient information on the self-isolation strategy of the individual, insurance can introduce moral hazard. We find that when premiums cannot be sufficiently differentiated, individuals may choose not to socially distance. This illustrates the importance of disclosing self-isolation strategies to the insurer, or inferring these strategies for the various types. Partial monitoring of social distancing strategy can mitigate the two problems of moral hazard and adverse selection.

Keywords: Social distancing game; Epidemic risks; Cohort effects; Insurance investment (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10479-023-05485-1

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