Self-insurance, self-protection and increased risk aversion

Dionne, Georges; Eeckhoudt, Louis

doi:10.1016/0165-1765(85)90123-5

Cited by 284 publications

(186 citation statements)

References 9 publications

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“…In the absence of an insurance market, the optimal level of self-insurance increases with increased risk aversion (see e.g. Dionne and Eeckhoudt, 1985).…”

Section: Introductionmentioning

confidence: 99%

Spatial effects in willingness to pay for avoiding nuclear risks

Schneider

Zweifel

2013

Swiss J Economics Statistics

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Summary How to deal with the risks associated with nuclear energy is a major policy issue. This paper investigates the effect of an individual’s distance from nuclear power plants on willingness to pay for increased insurance coverage against nuclear accidents (MWP C ) as well as on willingness to pay for solving the nuclear waste disposal problem (MWP W ). Using data from a discrete choice experiment conducted in Switzerland, we find evidence that MWP C values decrease with distance from plant once attitudes influencing choice of residential location are controlled for. However, distance from plant has no effect on MWP W values.

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“…In the absence of an insurance market, the optimal level of self-insurance increases with increased risk aversion (see e.g. Dionne and Eeckhoudt, 1985).…”

Section: Introductionmentioning

confidence: 99%

Spatial effects in willingness to pay for avoiding nuclear risks

Schneider

Zweifel

2013

Swiss J Economics Statistics

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“…It is well known that increased risk aversion does not necessarily raise the optimal investment in prevention (see, e.g., Dionne and Eeckhoudt, 1985;Briys and Schlesinger, 1990;Briys et al, 1991). This negative result is still not well explained in the literature.…”

mentioning

confidence: 68%

The impact of prudence on optimal prevention revisited

Dionne

Li²

2011

Economics Letters

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This paper re-examines the link between absolute prudence and self-protection activities.We show that the level of effort chosen by an agent with positive and decreasing absolute prudence is larger than the optimal effort chosen by a risk-neutral agent if the degree of absolute prudence is less than a threshold that is utility-independent and empirically verifiable.We explain this threshold by a trade-off between the variation of the variance and the level of the third moment of the loss distribution. We also discuss our result in terms of skewness.Our contribution extends the models of Eeckhoudt and Gollier (2005) and Chiu (2005b).

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“…In the final stage, the natural hazard does or does not occur and the benefits V() and v() are realised. 73 As in, for example, Ehrlich and Becker (1972), Dionne and Eeckhoudt (1985) and Jullien et al (1999).…”

Section: Jason Scott Johnston Disasters and Decentralisationmentioning

confidence: 99%

Disasters and Decentralisation

Johnston

2012

Geneva Pap Risk Insur Issues Pract

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Climate change may potentially increase the magnitude of losses from natural hazards, but the United States experience shows that the primary reason for escalating losses is policy failure. It is well known that centralised, taxpayer-funded ex post disaster relief has actually encouraged development in risky jurisdictions and also weakened incentives for ex ante precautions in such jurisdictions (moral or "charity" hazard). Less well known and analysed is the role played by centralised ex ante development subsidies-often masquerading as protective investment-in distorting incentives. This paper develops a simple three jurisdiction model in which homogeneous jurisdictions decide by majority vote in a centralised legislature on the centralised (federal) share of ex post loss and centralised spending an ex ante development in a Beneficiary jurisdiction, taking into account how these decisions about centralised spending impact local Beneficiary jurisdiction incentives for precautions against ex post loss. The model shows that the marginal cost of ex ante federal development spending may be greater for a Beneficiary jurisdiction than for a Contractor jurisdiction. This somewhat technical result has an observable implication: evidence that a small fraction of ex post loss in a Beneficiary jurisdiction is centrally compensated (shared across jurisdictions) is evidence that ex ante development subsidies there may be truly precautionary on net; conversely, evidence that a Beneficiary jurisdiction has a large share of its ex post hazard loss compensated by centralised disaster relief suggests that the ex ante development subsidies received by that jurisdiction did more to encourage new development and increase the amount at risk than they did to protect existing development. The model is extended to consider how ex post loss sharing impacts the demand for federally subsidised disaster insurance and other related issues.

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Self-insurance, self-protection and increased risk aversion

Cited by 284 publications

References 9 publications

Spatial effects in willingness to pay for avoiding nuclear risks

Spatial effects in willingness to pay for avoiding nuclear risks

The impact of prudence on optimal prevention revisited

Disasters and Decentralisation

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