Self-protection and insurance with interdependencies

Howard Kunreuther and Alexander Muermann

No 2007/22, CFS Working Paper Series from Center for Financial Studies (CFS)

Abstract: We study optimal investment in self-protection of insured individuals when they face interdependencies in the form of potential contamination from others. If individuals cannot coordinate their actions, then the positive externality of investing in self-protection implies that, in equilibrium, individuals underinvest in self-protection. Limiting insurance coverage through deductibles or selling 'at-fault' insurance can partially internalize this externality and thereby improve individual and social welfare.

Keywords: Externality; Mitigation; Insurance (search for similar items in EconPapers)
JEL-codes: C72 D62 D80 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:200722

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