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The self-insurance clauses puzzle : risk versus ambiguity

Author

Listed:
  • Stéphane Couture

    (MIAT INRA - Unité de Mathématiques et Informatique Appliquées de Toulouse - INRA - Institut National de la Recherche Agronomique)

  • Marielle Brunette

    (BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique)

  • François Pannequin

    (CES-Cachan - Centre d'économie de la Sorbonne-Cachan École Normale Supérieure Paris-Saclay - CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - ENS Paris Saclay - Ecole Normale Supérieure Paris-Saclay - Partenaires INRAE)

  • Anne Corcos

    (UPJV - Université de Picardie Jules Verne, CURAPP-ESS - Centre universitaire de recherches sur l'action publique et le politique. Epistémologie et Sciences sociales - UMR CNRS UPJV 7319 - UPJV - Université de Picardie Jules Verne - CNRS - Centre National de la Recherche Scientifique)

Abstract

In many insurance contracts, self-insurance clauses appeared. Our objective is to analyze if these self-insurance clauses are justified, function of the observability or not of the self-insurance by the insurer. For this purpose, we propose a theoretical model under risk and ambiguity jointly analysing insurance and self-insurance. Theoretical results show that self-insurance clauses are never justified under risk, and not justified under ambiguity when the self-insurance is observable by the insurer. Moreover, under ambiguity, when the self-insurance is unobservable by the insurer, we show that optimal self-insurance depends on ambiguity preferences. Our results also indicate that insurance and self-insurance are substitutes under risk and under ambiguity only when the self-insurance is observable by the insurer. Under ambiguity, when the self-insurance activity is unobservable, insurance and self-insurance may be or not substitutes when the decision maker has ambiguity aversion.

Suggested Citation

  • Stéphane Couture & Marielle Brunette & François Pannequin & Anne Corcos, 2016. "The self-insurance clauses puzzle : risk versus ambiguity," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-02801783, HAL.
    • Handle: RePEc:hal:cesptp:hal-02801783
    Note: View the original document on HAL open archive server: https://hal.inrae.fr/hal-02801783
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    References listed on IDEAS

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