Peer-reviewed article

Substitution Between Insurance and Self-Insurance: a Property Robust to Information Asymmetry and Ambiguity by M.Brunette, A.Corcos, S.Couture and F.Pannequin

Published on 14 December 2020

Article publication « Substitution Between Insurance and Self-Insurance: a Property Robust to Information Asymmetry and Ambiguity » by Marielle BrunetteAnne CorcosStéphane Couture and François Pannequin in Revue d’Economie Politique.

2020/4 (Vol. 130)

We study the effect of asymmetric information about self-insurance effort on the substitution property between insurance and self-insurance. We first examine the effect of the insurer’s ability to observe the policyholder’s self-insurance effort in a risk context. We then extend the analysis to a unilateral ambiguous context where only the policyholder has an ambiguous knowledge of his risk exposure. We find that information on the level of effort has a strategic dimension neither in the risk context nor in the ambiguous one: policyholders choose identical levels of effort, be the effort observable or not. As a result, the substitutability property between insurance and self-insurance is robust to both asymmetric information and ambiguity. The implications for government and insurers are discussed.

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