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Article Dans Une Revue Journal of Public Economics Année : 2014

Natural catastrophe insurance: How should the government intervene?

Résumé

This paper develops a theoretical framework for analyzing the decision to provide or buy insurance against the risk of natural catastrophes. In contrast to conventional models of insurance, the insurer has a non-zero probability of insolvency which depends on the distribution of the risks, the premium rate, and the amount of capital in the company. When the insurer is insolvent, each loss reduces the indemnity available to the victims, thus generating negative pecuniary externalities. Our model shows that government-provided insurance will be more attractive in terms of expected utility, as it allows these negative pecuniary externalities to be spread equally among policyholders. However, when heterogeneous risks are introduced, a government program may be less attractive in safer areas, which could yield inefficiency if insurance ratings are not chosen appropriately.
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Dates et versions

halshs-01018022 , version 1 (03-07-2014)

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Arthur Charpentier, Benoît Le Maux. Natural catastrophe insurance: How should the government intervene?. Journal of Public Economics, 2014, 115, pp.1-17. ⟨10.1016/j.jpubeco.2014.03.004⟩. ⟨halshs-01018022⟩
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