On the uselessness of self-insurance clauses ?

Marielle Brunette (), Stéphane Couture, Anne Corcos () and François Pannequin
Additional contact information
Anne Corcos: LEMMA - Laboratoire d'économie mathématique et de microéconomie appliquée - UP2 - Université Panthéon-Assas

Post-Print from HAL

Abstract: An insurer can monitor the policyholder's prevention effort when it is observable ex-post by using a contract clause. The literature on insurance contracts does not explicitly address the role of contract clauses. We examine the role of such clauses in case of self-insurance. Because of the substitutability between insurance and self-insurance, contract clauses focused on self-insurance investments could cause a possible deterrent effect on insurance demand, highlighting their puzzling nature. In a theoretical model, we examine two arguments to overcome the compulsory self-insurance clause paradox: the observability of the self-insurance investment and the role of the self-insurance clause on insurance demand. The fact that self-insurance investments are not observable ex-ante cannot justify the use of a mandatory clause. Neither the demand for insurance nor the demand for prevention is observability-dependent. Therefore, self-insurance clauses are, at best, useless, at worst, counterproductive: when binding, they reduce the size of the insurance market.

Keywords: auto assurance; clause du contrat (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-cta and nep-ias
Note: View the original document on HAL open archive server: https://hal.science/hal-02121860v1
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in Economics Bulletin, 2019, 39 (2), pp.830-837

Downloads: (external link)
https://hal.science/hal-02121860v1/document (application/pdf)

Related works:
Journal Article: On the uselessness of self-insurance clauses? (2019)
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:hal:journl:hal-02121860

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().