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Stephane Couture - One of the best experts on this subject based on the ideXlab platform.
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On the uselessness of Self-Insurance clauses ?
Economics Bulletin, 2019Co-Authors: Marielle Brunette, Stephane Couture, Anne Corcos, François PannequinAbstract:An insurer can monitor the policyholder's prevention effort when it is observable ex-post by using a contract clause. The literature on insurance contracts does not explicitly address the role of contract clauses. We examine the role of such clauses in case of Self-Insurance. Because of the substitutability between insurance and Self-Insurance, contract clauses focused on Self-Insurance investments could cause a possible deterrent effect on insurance demand, highlighting their puzzling nature. In a theoretical model, we examine two arguments to overcome the compulsory Self-Insurance clause paradox: the observability of the Self-Insurance investment and the role of the Self-Insurance clause on insurance demand. The fact that Self-Insurance investments are not observable ex-ante cannot justify the use of a mandatory clause. Neither the demand for insurance nor the demand for prevention is observability-dependent. Therefore, Self-Insurance clauses are, at best, useless, at worst, counterproductive: when binding, they reduce the size of the insurance market.
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risk management activities of a non industrial private forest owner with a bivariate utility function
Review of Agricultural Food and Environmental Studies, 2018Co-Authors: Marielle Brunette, Stephane CoutureAbstract:We analyze the insurance and Self-Insurance choices of a private forest owner whose utility is bivariate (consumption and forest amenity value). We show that under fair premium, full insurance is optimal only if the cross derivative of the utility function is equal to zero, whereas under unfair premium, optimal partial insurance is validated only if the cross derivative is positive. We also show that insurance and Self-Insurance may be substitutes, and if preferences are separable and the cost of insurance is not so high, then insurance and Self-Insurance are always considered as substitutes. However, we find in an illustration with a non-separable bivariate utility function, characterized by weights given to consumption and amenities, that insurance and Self-Insurance are complement. We obtain that the weight given to amenities substantially affects optimal risk management activities for unfair insurance. These results highlight the importance to represent the forest owner’s behavior through a bivariate utility function.
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The Self-Insurance clauses puzzle : risk versus ambiguity
2016Co-Authors: Stephane Couture, Marielle Brunette, François Pannequin, Anne CorcosAbstract:In many insurance contracts, Self-Insurance clauses appeared. Our objective is to analyze if these Self-Insurance clauses are justified, function of the observability or not of the Self-Insurance by the insurer. For this purpose, we propose a theoretical model under risk and ambiguity jointly analysing insurance and Self-Insurance. Theoretical results show that Self-Insurance clauses are never justified under risk, and not justified under ambiguity when the Self-Insurance is observable by the insurer. Moreover, under ambiguity, when the Self-Insurance is unobservable by the insurer, we show that optimal Self-Insurance depends on ambiguity preferences. Our results also indicate that insurance and Self-Insurance are substitutes under risk and under ambiguity only when the Self-Insurance is observable by the insurer. Under ambiguity, when the Self-Insurance activity is unobservable, insurance and Self-Insurance may be or not substitutes when the decision maker has ambiguity aversion.
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Risk management activities of a non-industrial private forest owner with a bivariate utility function
2014Co-Authors: Marielle Brunette, Stephane CoutureAbstract:In this paper, we propose to analyse the choice of risk management activity made by a nonindustrial private forest owner who derives utility from consumption and from the sentimental value of the forest that bears a risk of disaster. We consider a bivariate utility function depending on consumption and sentimental value of forest. In this context, we analyse insurance and/or Self-Insurance decisions. We show that, under fair premium, full insurance is optimal only if the cross derivative of the utility function equals zero. Under-insurance and over-insurance may also be optimal depending on the sign of this cross derivative. We also show that, under a positive loading factor, optimal partial insurance is validated only if the cross derivative is positive; otherwise full insurance may be optimal even with a loading insurance. We also observe that risk aversion increases the level of insurance demand and Self-Insurance activity, extending this standard result obtained with an univariate utility function to a bivariate utility function. Moreover, when the forest owner can simultaneously insure and invest in Self-Insurance activity, full insurance is never optimal if the cross derivative is positive. Finally, we prove that insurance and Self-Insurance may be substitutes, and if preferences are separable and exhibit decreasing absolute risk aversion, then insurance and Self-Insurance are always considered as substitutes.
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risk management activities of a non industrial priv ate forest owner with a bivariate utility function
Journées internationales du Risque, 2014Co-Authors: Marielle Brunette, Stephane CoutureAbstract:In this paper, we propose to analyse the choice of risk management activity made by a non-industrial private forest owner who derives utility from consu mption and from the sentimental value of the forest that bears a risk of disaster. We consider a bivari ate utility function depending on consumption and sentimental value of forest. In this context, we an alyse insurance and/or Self-Insurance decisions. We show that, under fair premium, full insurance is op timal only if the cross derivative of the utility function equals zero. Under-insurance and over-insu rance may also be optimal depending on the sign of this cross derivative. We also show that, under a positive loading factor, optimal partial insuranc e is validated only if the cross derivative is positive; otherwise full insurance may be optimal even with a loading insurance. We also observe that risk aversi on increases the level of insurance demand and self insurance activity, extending this standard result obtained with an univariate utility function to a bivariate utility function. Moreover, when the forest owner can simultaneously insure and invest in Self-Insurance activity, full insurance is never optimal if the cross derivative is positive. Finally, we prove that insurance and s elfinsurance may be substitutes, and if preferences ar e separable and exhibit decreasing absolute risk aversion, then insurance and Self-Insurance are alw ays considered as substitutes.
Kangoh Lee - One of the best experts on this subject based on the ideXlab platform.
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Wealth Effects on Self-Insurance
The Geneva Risk and Insurance Review, 2010Co-Authors: Kangoh LeeAbstract:This paper considers the wealth effects on Self-Insurance investment that reduces loss. Wealthier individuals can bear the risk better, and invest less in Self-Insurance with two states of the world. Self-Insurance, like insurance, is thus an inferior good. This known result does not extend to many states. The reason is that an increase in Self-Insurance does not necessarily reduce final wealth in good states and increase it in bad states. Self-Insurance thus may not act as insurance, and wealthier individuals may not necessarily invest less in Self-Insurance. The paper proposes a condition under which Self-Insurance is inferior, and a condition under which it is normal.
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Risk aversion and Self-Insurance
Journal of Economics, 2010Co-Authors: Kangoh LeeAbstract:This paper considers the effects of an increase in risk aversion on Self-Insurance. More risk-averse individuals invest more in Self-Insurance in the case of two states of the world. However, with more than two states, this standard conclusion does not hold. The reason is that Self-Insurance does not necessarily reduce larger losses more effectively than smaller losses. Self-Insurance thus may not serve as insurance, and more risk-averse individuals may invest more or less in Self-Insurance. The paper provides a condition for more risk-averse individuals to invest more in Self-Insurance, and a condition for them to invest less.
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Wealth Effects on Self-Insurance and Self-Protection against Monetary and Nonmonetary Losses
The Geneva Risk and Insurance Review, 2005Co-Authors: Kangoh LeeAbstract:This paper considers the wealth effects on Self-Insurance and self-protection activities against possible losses of monetary wealth such as properties and nonmonetary wealth such as health. Increased initial income or monetary wealth decreases the demand for Self-Insurance against monetary wealth loss under the decreasing absolute risk aversion assumption, and has an ambiguous effect on self-protection. However, increased initial monetary wealth increases both Self-Insurance and self-protection against health loss, explaining empirical trends, if wealth and health are complements. When multiple Self-Insurance activities against both types of losses are considered, the effect of an increase in initial monetary wealth on Self-Insurance against health loss remains the same, but the effect on Self-Insurance against wealth loss depends on the preferences.
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Risk Aversion and Self-Insurance-cum-Protection
Journal of Risk and Uncertainty, 1998Co-Authors: Kangoh LeeAbstract:Self-Insurance and self-protection have been discussed separately in the literature. However, as observed in practice, many actions individuals take to modify a potential loss serve both as Self-Insurance and as self-protection. Given this practical importance of Self-Insurance-cum-protection activities, this paper examines the effect of increased risk aversion on such activities. The analysis shows that the effect depends in part on the shape of the loss function and that of the probability function.
Marielle Brunette - One of the best experts on this subject based on the ideXlab platform.
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On the uselessness of Self-Insurance clauses ?
Economics Bulletin, 2019Co-Authors: Marielle Brunette, Stephane Couture, Anne Corcos, François PannequinAbstract:An insurer can monitor the policyholder's prevention effort when it is observable ex-post by using a contract clause. The literature on insurance contracts does not explicitly address the role of contract clauses. We examine the role of such clauses in case of Self-Insurance. Because of the substitutability between insurance and Self-Insurance, contract clauses focused on Self-Insurance investments could cause a possible deterrent effect on insurance demand, highlighting their puzzling nature. In a theoretical model, we examine two arguments to overcome the compulsory Self-Insurance clause paradox: the observability of the Self-Insurance investment and the role of the Self-Insurance clause on insurance demand. The fact that Self-Insurance investments are not observable ex-ante cannot justify the use of a mandatory clause. Neither the demand for insurance nor the demand for prevention is observability-dependent. Therefore, Self-Insurance clauses are, at best, useless, at worst, counterproductive: when binding, they reduce the size of the insurance market.
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risk management activities of a non industrial private forest owner with a bivariate utility function
Review of Agricultural Food and Environmental Studies, 2018Co-Authors: Marielle Brunette, Stephane CoutureAbstract:We analyze the insurance and Self-Insurance choices of a private forest owner whose utility is bivariate (consumption and forest amenity value). We show that under fair premium, full insurance is optimal only if the cross derivative of the utility function is equal to zero, whereas under unfair premium, optimal partial insurance is validated only if the cross derivative is positive. We also show that insurance and Self-Insurance may be substitutes, and if preferences are separable and the cost of insurance is not so high, then insurance and Self-Insurance are always considered as substitutes. However, we find in an illustration with a non-separable bivariate utility function, characterized by weights given to consumption and amenities, that insurance and Self-Insurance are complement. We obtain that the weight given to amenities substantially affects optimal risk management activities for unfair insurance. These results highlight the importance to represent the forest owner’s behavior through a bivariate utility function.
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The Self-Insurance clauses puzzle : risk versus ambiguity
2016Co-Authors: Stephane Couture, Marielle Brunette, François Pannequin, Anne CorcosAbstract:In many insurance contracts, Self-Insurance clauses appeared. Our objective is to analyze if these Self-Insurance clauses are justified, function of the observability or not of the Self-Insurance by the insurer. For this purpose, we propose a theoretical model under risk and ambiguity jointly analysing insurance and Self-Insurance. Theoretical results show that Self-Insurance clauses are never justified under risk, and not justified under ambiguity when the Self-Insurance is observable by the insurer. Moreover, under ambiguity, when the Self-Insurance is unobservable by the insurer, we show that optimal Self-Insurance depends on ambiguity preferences. Our results also indicate that insurance and Self-Insurance are substitutes under risk and under ambiguity only when the Self-Insurance is observable by the insurer. Under ambiguity, when the Self-Insurance activity is unobservable, insurance and Self-Insurance may be or not substitutes when the decision maker has ambiguity aversion.
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Risk management activities of a non-industrial private forest owner with a bivariate utility function
2014Co-Authors: Marielle Brunette, Stephane CoutureAbstract:In this paper, we propose to analyse the choice of risk management activity made by a nonindustrial private forest owner who derives utility from consumption and from the sentimental value of the forest that bears a risk of disaster. We consider a bivariate utility function depending on consumption and sentimental value of forest. In this context, we analyse insurance and/or Self-Insurance decisions. We show that, under fair premium, full insurance is optimal only if the cross derivative of the utility function equals zero. Under-insurance and over-insurance may also be optimal depending on the sign of this cross derivative. We also show that, under a positive loading factor, optimal partial insurance is validated only if the cross derivative is positive; otherwise full insurance may be optimal even with a loading insurance. We also observe that risk aversion increases the level of insurance demand and Self-Insurance activity, extending this standard result obtained with an univariate utility function to a bivariate utility function. Moreover, when the forest owner can simultaneously insure and invest in Self-Insurance activity, full insurance is never optimal if the cross derivative is positive. Finally, we prove that insurance and Self-Insurance may be substitutes, and if preferences are separable and exhibit decreasing absolute risk aversion, then insurance and Self-Insurance are always considered as substitutes.
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risk management activities of a non industrial priv ate forest owner with a bivariate utility function
Journées internationales du Risque, 2014Co-Authors: Marielle Brunette, Stephane CoutureAbstract:In this paper, we propose to analyse the choice of risk management activity made by a non-industrial private forest owner who derives utility from consu mption and from the sentimental value of the forest that bears a risk of disaster. We consider a bivari ate utility function depending on consumption and sentimental value of forest. In this context, we an alyse insurance and/or Self-Insurance decisions. We show that, under fair premium, full insurance is op timal only if the cross derivative of the utility function equals zero. Under-insurance and over-insu rance may also be optimal depending on the sign of this cross derivative. We also show that, under a positive loading factor, optimal partial insuranc e is validated only if the cross derivative is positive; otherwise full insurance may be optimal even with a loading insurance. We also observe that risk aversi on increases the level of insurance demand and self insurance activity, extending this standard result obtained with an univariate utility function to a bivariate utility function. Moreover, when the forest owner can simultaneously insure and invest in Self-Insurance activity, full insurance is never optimal if the cross derivative is positive. Finally, we prove that insurance and s elfinsurance may be substitutes, and if preferences ar e separable and exhibit decreasing absolute risk aversion, then insurance and Self-Insurance are alw ays considered as substitutes.
James M Poterba - One of the best experts on this subject based on the ideXlab platform.
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tax incentives and the decision to purchase health insurance evidence from the self employed
Quarterly Journal of Economics, 1994Co-Authors: Jonathan Gruber, James M PoterbaAbstract:The Tax Reform Act of 1986 introduced a new tax subsidy for health insurance purchases by the self-employed. We analyze the changing patterns of insurance demand before and after tax reform to generate new estimates of how the after-tax price of insurance affects the discrete choice of whether to buy insurance. We employ both traditional regression models and difference-in-difference methods that compare changes in insurance coverage across groups around TRA86. The results from our most carefully controlled comparison suggest that a 1 percent increase in the cost of insurance coverage reduces the probability that a self-employed single person will be insured by 1.8 percentage points.
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tax incentives and the decision to purchase health insurance evidence from the self employed
National Bureau of Economic Research, 1993Co-Authors: Jonathan Gruber, James M PoterbaAbstract:The Tax Reform Act of 1986 introduced a new tax subsidy for health insurance purchases by self-employed persons. This paper analyzes the changing patterns of insurance demand before and after this reform to generate new estimates of how the after tax price of insurance affects the discrete choice of whether to buy insurance. We employ both traditional regression models for insurance demand, in which after-tax price of insurance is an explanatory variable. as well as nonparametric tests that compare changes in insurance purchases by self-employed individuals with the coincident changes for other groups. Our analysis suggests that I one percent increase in the cost of insurance coverage reduces the probability that a self-employed household will be insured by as much as 1.8 percentage points.
Bernardita Vial - One of the best experts on this subject based on the ideXlab platform.
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self selection and moral hazard in chilean health insurance
Journal of Health Economics, 2003Co-Authors: Claudio Sapelli, Bernardita VialAbstract:We study the existence of self-selection and moral hazard in the Chilean health insurance industry. Dependent workers must purchase health insurance either from one public or several private insurance providers. For them, we analyze the relationship between health care services utilization and the choice of either private or public insurance. In the case of independent workers, where there is no mandate, we analyze the relationship between utilization and the decision to voluntarily purchase health insurance. The results show self-selection against insurance companies for independent workers, and against public insurance for dependent workers. Moral hazard is negligible in the case of hospitalization, but for medical visits, it is quantitatively important.
