Insurance and perceptions: how to screen optimists and pessimists

Spinnewijn, Johannes ORCID: 0000-0002-7963-5847 (2013) Insurance and perceptions: how to screen optimists and pessimists. The Economic Journal, 123 (569). pp. 606-633. ISSN 0013-0133

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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
Divisions:	Economics Centre for Economic Performance
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management H Social Sciences > HG Finance
JEL classification:	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
Date Deposited:	17 Oct 2012 09:01
Last Modified:	12 Dec 2024 00:19
URI:	http://eprints.lse.ac.uk/id/eprint/46858

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