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What if compulsory insurance triggered self-insurance? An experimental evidence

Author

Listed:
  • Anne Corcos

    (CURAPP-ESS UMR 7319, CNRS and Université de Picardie Jules Verne)

  • François Pannequin

    (CEPS, ENS Paris-Saclay and University of Paris-Saclay)

  • Claude Montmarquette

    (Cirano and Université de Montréal)

Abstract

Although it avoids the negative externalities associated with the damages caused by uninsured individuals, compulsory insurance raises the issue of insurance crowding out prevention. Interestingly, Pannequin and Corcos ((2020)) show that on a theoretical level, although compulsory insurance and self-insurance (prevention investments dedicated to loss reduction) are substitutes for risk averters, they are complementary for risk lovers. The present contribution aims to test, in the Lab, these surprising results using a model-based experimental design. Our experimental results support the theoretical predictions: compulsory insurance and self-insurance are complementary for risk lovers and substitutes for risk averters. This contribution fully supports public policies that aim to implement mandatory insurance. Far from deterring prevention activities and providing that its level is high enough, mandatory insurance increases prevention levels.

Suggested Citation

  • Anne Corcos & François Pannequin & Claude Montmarquette, 2023. "What if compulsory insurance triggered self-insurance? An experimental evidence," Documents de recherche 23-01, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    • Handle: RePEc:eve:wpaper:23-01
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    References listed on IDEAS

    as
    1. W. J. Wouter Botzen & Howard Kunreuther & Erwann Michel-Kerjan, 2019. "Protecting against disaster risks: Why insurance and prevention may be complements," Journal of Risk and Uncertainty, Springer, vol. 59(2), pages 151-169, October.
    2. Mol, Jantsje M. & Botzen, W. J. Wouter & Blasch, Julia E., 2020. "Risk reduction in compulsory disaster insurance: Experimental evidence on moral hazard and financial incentives," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 84(C).
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    More about this item

    Keywords

    compulsory insurance; self-insurance; experiment; risk-attitudes; substitutability; complementarity;
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