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On how access to an insurance market affects investments in safety measures, based on the expected utility theory

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  • Abrahamsen, Eirik Bjorheim
  • Asche, Frank

Abstract

This paper focuses on how access to an insurance market should influence investments in safety measures in accordance with the ruling paradigm for decision-making under uncertainty—the expected utility theory. We show that access to an insurance market in most situations will influence investments in safety measures. For an expected utility maximizer, an overinvestment in safety measures is likely if access to an insurance market is ignored, while an underinvestment in safety measures is likely if insurance is purchased without paying attention to the possibility for reducing the probability and/or consequences of an accidental event by safety measures.

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  • Abrahamsen, Eirik Bjorheim & Asche, Frank, 2011. "On how access to an insurance market affects investments in safety measures, based on the expected utility theory," Reliability Engineering and System Safety, Elsevier, vol. 96(3), pages 361-364.
    • Handle: RePEc:eee:reensy:v:96:y:2011:i:3:p:361-364
    DOI: 10.1016/j.ress.2010.10.004
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    References listed on IDEAS

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    1. Viscusi, W Kip, 1993. "The Value of Risks to Life and Health," Journal of Economic Literature, American Economic Association, vol. 31(4), pages 1912-1946, December.
    2. Tim Lohse & Julio R. Robledo & Ulrich Schmidt, 2012. "Self‐Insurance and Self‐Protection as Public Goods," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 79(1), pages 57-76, March.
    3. Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-648, July-Aug..
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    1. Abrahamsen, Eirik Bjorheim & Moharamzadeh, Alireza & Abrahamsen, Håkon Bjorheim & Asche, Frank & Heide, Bjørnar & Milazzo, Maria Francesca, 2018. "Are too many safety measures crowding each other out?," Reliability Engineering and System Safety, Elsevier, vol. 174(C), pages 108-113.

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