Self-Protection and Insurance with Interdependencies

22 Pages Posted: 12 Jan 2007 Last revised: 8 May 2012

See all articles by Alexander Muermann

Alexander Muermann

WU (Vienna University of Economics and Business); Vienna Graduate School of Finance (VGSF)

Howard Kunreuther

University of Pennsylvania - Operations, Information and Decisions Department; National Bureau of Economic Research (NBER)

Date Written: January 2007

Abstract

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.

Suggested Citation

Muermann, Alexander and Kunreuther, Howard C., Self-Protection and Insurance with Interdependencies (January 2007). NBER Working Paper No. w12827. Available at SSRN: https://ssrn.com/abstract=956866

Alexander Muermann

WU (Vienna University of Economics and Business) ( email )

Welthandelsplatz 1
A - 1020 Wien
Austria
+43 1 31336 4948 (Phone)
+43 1 31336 90 4948 (Fax)

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
A - 1020 Wien
Austria

Howard C. Kunreuther (Contact Author)

University of Pennsylvania - Operations, Information and Decisions Department ( email )

3730 Walnut Street
558 & 559 Jon M. Huntsman Hall
Philadelphia, PA 19104-5340
United States
212-854-0423 (Phone)
215-573-2130 (Fax)

National Bureau of Economic Research (NBER)

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