What if compulsory insurance triggered self-insurance? An experimental evidence

François Pannequin, Anne Corcos () and Claude Montmarquette
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François Pannequin: CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - GENES - Groupe des Écoles Nationales d'Économie et Statistique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - GENES - Groupe des Écoles Nationales d'Économie et Statistique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique
Anne Corcos: LEFMI - Laboratoire d’Économie, Finance, Management et Innovation - UR UPJV 4286 - UPJV - Université de Picardie Jules Verne

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Abstract: Although compulsory insurance mitigates the negative externalities caused by uninsured individuals, it raises the issue of insurance crowding out prevention. However, at the theoretical level, compulsory insurance and self-insurance (preventive investments dedicated to loss reduction) are know to be substitutes for risk averters but complements for risk lovers. This paper aims to empirically test these opposite predictions through a laboratory experiment using a model-based design. Our experimental results confirm the theoretical predictions: compulsory insurance and self-insurance are complements for risk lovers and substitutes for risk averters. This study strongly supports public policies advocating mandatory insurance implementation as they enhance risk lovers' self-insurance investments. Therefore, a risk management scheme combining voluntary top-up and compulsory partial insurance guarantees an optimal risk allocation for risk-averters and increases the investments in self-insurance for risk-lovers.

Keywords: Substitutability; Self-insurance; Risk-attitudes; Experiment; Compulsory insurance; Complementarity (search for similar items in EconPapers)
Date: 2025-10-09
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Published in Journal of the Economic Science Association, 2025, pp.1-17. ⟨10.1017/esa.2025.10022⟩

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Working Paper: What if compulsory insurance triggered self-insurance? An experimental evidence (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05311310

DOI: 10.1017/esa.2025.10022

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