Self-Protection and Insurance with Interdependencies

Alexander Muermann, Howard Kunreuther

NBER Working Paper No. 12827
Issued in January 2007
NBER Program(s):   PE

We study optimal investment in self-protection of insured individuals when they face interdependencies in the form of potential contamination from others. If individuals cannot coordinate their actions, then the positive externality of investing in self-protection implies that, in equilibrium, individuals underinvest in self-protection. Limiting insurance coverage through deductibles can partially internalize this externality and thereby improve individual and social welfare.

(219 K)

Published: Alexander Muermann & Howard Kunreuther, 2008. "Self-protection and insurance with interdependencies," Journal of Risk and Uncertainty, Springer, vol. 36(2), pages 103-123, April.

This paper is available as PDF (219 K) or via email.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX