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Formal and Informal Risk-Sharing under Altruistic Preferences

15 gennaio 2020 ore 12:00 - 14:00

Aula 207, Sede di Viale Romania, 32

Speaker: Roberto Zeitounlian Sarkisian, Toulouse School of Economics

Abstract:

“Can informal risk-sharing crowd out formal insurance policies? I consider an insurance model where altruistic agents can buy insurance, self-protect against a loss and cross-insure by means of bilateral transfers. Such altruism-driven transfers may lead the individuals to free-ride on each others’ choices of effort and demand for formal insurance, and hence hinder the development of formal insurance markets. Absent any information asymmetries, I show that an actuarially fair insurance policy providing full coverage can be crowded out by the individuals’ risk-sharing arrangements. A similar result holds when the individuals’ self-protection efforts cannot be contracted upon by the insurer. These findings suggest a novel source of inefficiency in insurance markets, namely prosociality among the insurees.”

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Altruism and Insurance 2.pdf942.31 KB