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Insurance and perceptions: how to screen optimists and pessimists

Spinnewijn, Johannes (2013) Insurance and perceptions: how to screen optimists and pessimists. Economic Journal, 123 (569). pp. 606-633. ISSN 1468-0297

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Abstract

People have very different beliefs about the risks they face. I analyze how heterogeneous risk perceptions affect the insurance contracts offered by pro.t-maximizing .rms. An essential distinction is how risk perceptions affect the willingness to pay for insurance relative to the willingness to exert risk-reducing effort. This determines both the sign of the correlation between risk and insurance coverage in equilibrium, shedding new light on a recent empirical puzzle, and the type of individuals screened by either monopolistic or competing .rms. Even with perfect competition, heterogeneous risk perceptions may well strengthen the case for government intervention in insurance markets.

Item Type: Article
Official URL: http://onlinelibrary.wiley.com/journal/10.1111/%28...
Additional Information: © 2013 The Author
Library of Congress subject classification: H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
H Social Sciences > HG Finance
Journal of Economic Literature Classification System: D - Microeconomics > D6 - Welfare Economics > D60 - General
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D80 - General
G - Financial Economics > G2 - Financial Institutions and Services > G22 - Insurance; Insurance Companies
Sets: Departments > Economics
Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 17 Oct 2012 09:01
URL: http://eprints.lse.ac.uk/46858/

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