Social Distancing Game and Insurance Investment in a Pandemic

33 Pages Posted: 29 Jul 2020 Last revised: 8 Feb 2022

See all articles by Hamed Amini

Hamed Amini

Georgia State University

Andreea Minca

Cornell University

Date Written: July 1, 2021

Abstract

We consider a heterogeneous SIR epidemic model, calibrated to the COVID-19 pandemic characteristics. We study the equilibrium of a voluntary social distancing game on a network of individuals subject to epidemic risk. We quantify the absolute and relative utility gaps across age cohorts. We further introduce life insurance in the model, which serves to mitigate the loss in the severe individual outcomes. We find that in most cases, insurance decreases the risk of contagion in the network because more individuals can be incentivized to self-isolate. On the other hand, in the case when the insurer does not have sufficient information on the self-isolation strategy of the individual, insurance can introduce moral hazard. We find that when premiums cannot be sufficiently differentiated, individuals may choose not to socially distance. This illustrates the importance of disclosing self-isolation strategies to the insurer, or inferring these strategies for the various types. Partial monitoring of social distancing strategy can mitigate the two problems of moral hazard and adverse selection.

Note: Funding: None to declare

Declaration of Interest: None to declare

Keywords: Social distancing game, epidemic risks, cohort effects, insurance investment

JEL Classification: D6, D8, I1

Suggested Citation

Amini, Hamed and Minca, Andreea, Social Distancing Game and Insurance Investment in a Pandemic (July 1, 2021). Available at SSRN: https://ssrn.com/abstract=3645889 or http://dx.doi.org/10.2139/ssrn.3645889

Hamed Amini (Contact Author)

Georgia State University ( email )

Georgia State University
Atlanta, GA 30303
United States

Andreea Minca

Cornell University ( email )

222 Rhodes Hall
Ithaca, NY NY 14853
United States

HOME PAGE: http://people.orie.cornell.edu/acm299/

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