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An optimality condition for sustainability actions under discounted expected utility is that, ex post, we should almost surely regret having adjusted them too much for risk. In other words, ex post, one would almost surely feel regret for "excess" precautionary saving, excess insurance and hedging coverage, or for excess risk-bearing. Moreover, for marginal investments whose impacts materialize in t years, t tending to infinity, their state-contingent present value tends to zero almost surely, in spite of the fact that their expected value is one. The value of sustainable actions is thus mostly derived from very improbable extreme scenarios. [ABSTRACT FROM AUTHOR]

Byline: Christian Gollier (1) Keywords: insurance; liquidity constraints; deductible; dynamic risk management Abstract: The selection of a deductible level in insurance is governed by the willingness to limit the risk borne by risk-averse agents at an acceptable cost, given the deadweight insurance loading. We examine the demand for insurance in a simple lifecycle model with a liquidity constraint and no serial correlation in the insurable risk. This allows for consumers to follow a time-diversification (self-insurance) strategy by accumulating buffer stock wealth. We conclude that insurance would only be demanded for catastrophic risks, or by people that are currently liquidity constrained. The added value of the insurance sector is thus surprisingly low in such an economy. Author Affiliation: (1) University of Toulouse (LEERNA and IDEI), F-31042, Toulouse Cedex, France Article History: Registration Date: 05/10/2004

An introduction is presented in which the editor discusses articles in the issue on topics including insurance; lotteries; and experimental economics.

In this article, we derive a set of simple conditions such that ambiguity aversion always raises the demand for self-insurance and the insurance coverage, but decreases the demand for self-protection. We also characterise the optimal insurance design under ambiguity aversion and exhibit a case in which the straight deductible contract is optimal as in the expected utility model. [ABSTRACT FROM AUTHOR]

The assumption usually made in the insurance literature that risks are always insurable at the desired level does not hold in the real world: some risks are not-or are only partially-insurable, while others, such as civil liability or health and workers' injuries, must be fully insured or at least covered for a specific amount. We examine in this paper conditions under which a reduction in the constrained level of insurance for one risk increases the demand of insurance for another independent risk. We show that it is necessary to sign the fourth derivative of the utility function to obtain an unambiguous spillover effect. Three different sufficient conditions are derived if the expected value of the exogenous risk is zero. The first condition is that risk aversion be standard-that is, that absolute risk aversion and absolute prudence be decreasing. The second condition is that absolute risk aversion be decreasing and convex. The third condition is that both the third and the fourth derivatives of the utility function be negative. If the expected value of the exogenous risk is positive, a wealth effect is added to the picture, which goes in the opposite direction if absolute risk aversion is decreasing. [ABSTRACT FROM AUTHOR]

In this paper we propose an answer to the following problem of comparative statics in models with multiple sources of risk: How a risk averse agent will change his coinsurance demand when the distribution of the insurable loss is shifted? To answer the question, we first comment on Jack Meyer's results and then we show how an alternate approach leads to more definitive comparative statics. [ABSTRACT FROM AUTHOR]

Two models of spot labor markets are presented in which labor suppliers have heterogeneous attitudes towards effort and in which uncertainty prevails on labor productivity and growth. The problem of selecting efficient rules to manage unemployment insurance (UI) systems is considered. We show that there does not exist any system which combines an efficient allocation of labor with an efficient allocation of risks among employees, unemployed workers and capital-owners. Pareto-efficient policy rules are a best compromise between these two conflicting objectives. It implies that productive efficiency could be improved in periods of mass unemployment by reducing UI benefits. That would be at the expense of more inefficiencies in the sharing of macroeconomic risks. At the optimum, the UI benefit is positively correlated to growth and it is negatively correlated to labor productivity. [ABSTRACT FROM AUTHOR]

We provide a new proof for the optimality of deductible insurance that does not depend on the expected-utility hypothesis. Our model uses only first- and second-degree stochastic dominance arguments. [ABSTRACT FROM AUTHOR]

The optimal form of insurance contracts for multiple risks is examined. A well-known result in the literature is that, under fairly general conditions, an insurance policy with a deductible for aggregate losses is optimal. Real-world markets, however, are typically incomplete in that they require separate contracts for separate loss exposures. For instance, insurable damage to one's home is not generally allowed to affect the insurance indemnity for (unrelated) insurable damage to one's automobile. We show that separate deductibles are second-best optima in this setting. We compare the indemnity provided in this second-best setting with first-best solutions. The effect of second-best contracts on the individual's total insurance demand is also examined. [ABSTRACT FROM AUTHOR]

We analyze in this paper the effect of age on the optimal dynamic strategy toward repeated independent gambles. When deciding to accept or to reject a lottery that is offered today, the gambler knows how many lotteries can yet be played in the future. We first characterize the optimal dynamic strategy when future lotteries are identically distributed. We show that the existence of future lotteries always increases the willingness to gamble today. When the sequence of lotteries is independent but not identically distributed, we show that this does not need to be true. The analysis can be applied to the problem of investing in indivisible risky investment projects, or to the problem of dynamic optimal insurance demand. [ABSTRACT FROM AUTHOR]

In this paper we address the problem of determining whether adding independent risks or subdividing them is a good substitute for insurance. Despite the fact that accepting more i.i.d. risks increases total risk, it is shown that some risk-averse decision makers can rationally reduce their demand for insurance by doing so. Similarly, a better diversified portfolio of i.i.d. risky assets can rationally be more insured, even if diversification is a risk-reduction scheme. We derive conditions sufficient to obtain unambiguous comparative statics results. Assuming that absolute risk aversion is decreasing and that the fourth derivative of the utility function is positive, we show that diversification is an exceptionally good substitute for insurance. Under the same conditions, adding independent risks to wealth reduces the demand for insurance on each unit. [ABSTRACT FROM AUTHOR]

Comments on Professor Dick Zeckhauser's analysis of catastrophic risks. Prerequisites for a socially efficient risk sharing by insurance companies; Zeckhauser's focus on moral hazard; Global lack of prevention.

Highlights the Twenty-First Annual Meeting of the European Group of Risk and Insurance Economists at the University of Ibulouse on September 1994. Emphasis on the use of non-expected utility models for insurance and risk management; Research papers presented at the meeting; Provision of simple, testable properties of the optimal behavior of a risk averter in the face of risk by the expected utility criterion.

Comments on several issues relevant to insurance and insurance companies in the U.S. in 1998. Risk; Risk management; Implications on the sector.