The self-insurance clauses puzzle: risk versus ambiguity

Stéphane Couture, Marielle Brunette (), François Pannequin and Anne Corcos ()
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Anne Corcos: UPJV - Université de Picardie Jules Verne, CURAPP-ESS - Centre universitaire de recherches sur l'action publique et le politique. Epistémologie et Sciences sociales - UMR CNRS UPJV 7319 - UPJV - Université de Picardie Jules Verne - CNRS - Centre National de la Recherche Scientifique

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Abstract: In many insurance contracts, self-insurance clauses appeared. Our objective is to analyze if these self-insurance clauses are justified, function of the observability or not of the self-insurance by the insurer. For this purpose, we propose a theoretical model under risk and ambiguity jointly analysing insurance and self-insurance. Theoretical results show that self-insurance clauses are never justified under risk, and not justified under ambiguity when the self-insurance is observable by the insurer. Moreover, under ambiguity, when the self-insurance is unobservable by the insurer, we show that optimal self-insurance depends on ambiguity preferences. Our results also indicate that insurance and self-insurance are substitutes under risk and under ambiguity only when the self-insurance is observable by the insurer. Under ambiguity, when the self-insurance activity is unobservable, insurance and self-insurance may be or not substitutes when the decision maker has ambiguity aversion.

Keywords: Risk; Ambiguity; Insurance; Self-insurance (search for similar items in EconPapers)
Date: 2016-06-09
Note: View the original document on HAL open archive server: https://hal.inrae.fr/hal-02801783v1
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Published in Journées internationales du Risque, Jun 2016, Poitiers, France. 14 p

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Working Paper: The self-insurance clauses puzzle: risk versus ambiguity (2016)
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