Self-insurance against natural disasters
Expenditures on self-insurance to mitigate the effects of natural disasters on the value of private assets are examined in a model where individuals are partially insured against financial loss by a public relief program and where private insurance is unavailable. The model predicts that optimal private expenditures on self-insurance will be excessive or insufficient according to the nature of the technology by which individuals protect their assets. The comparative static effects of variations in the level of public compensation, individual wealth, and attitudes toward risk and the degree of environmental uncertainty on self-insurance expenditures and on the magnitude and frequency of public compensation are also characterized and their implications for remedial government policies are examined. © 1989.
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