Theory and Decision 88 (1):121-151 (2020)

Abstract
We use a controlled laboratory experiment to study firm’s protection against potential technological damages. The probability of a catastrophic event is known, and the firm’s costly investment in safety reduces it. The firm can also buy an insurance with full or partial refund against the consequences of the catastrophic event, which ultimately reduces the variance of the firm’s investment-in-safety lottery. The firm makes these two choices simultaneously, after observing the insurance contract proposed by an insurer who chooses this contract within a set of premium–deductible combinations. We parametrize the insurer–firm game such that a risk-neutral insurer maximizes his expected profit by offering an actuarially fair contract with full insurance; a risk-neutral firm is indifferent between investing in safety and accepting a fair insurance contract. We aim at understanding whether investment in safety and insurance are substitutes or complements in the firm’s risk management of catastrophic events. In line with our predictions, the experimental results suggest that they are substitutes rather than complements: the firm’s investment in safety measures is affected by the insurer’s proposed contract, the latter usually involving only partial insurance.
Keywords No keywords specified (fix it)
Categories No categories specified
(categorize this paper)
ISBN(s)
DOI 10.1007/s11238-019-09703-w
Options
Edit this record
Mark as duplicate
Export citation
Find it on Scholar
Request removal from index
Revision history

Download options

PhilArchive copy


Upload a copy of this paper     Check publisher's policy     Papers currently archived: 63,421
External links

Setup an account with your affiliations in order to access resources via your University's proxy server
Configure custom proxy (use this if your affiliation does not provide a proxy)
Through your library

References found in this work BETA

Add more references

Citations of this work BETA

No citations found.

Add more citations

Similar books and articles

Reducing Losses From Catastrophic Risks Through Long-Term Insurance and Mitigation.Howard Kunreuther - 2008 - Social Research: An International Quarterly 75 (3):905-930.
The Economic Organization of Science, the Firm, and the Marketplace.James R. Wible - 1995 - Philosophy of the Social Sciences 25 (1):35-68.
Determination of Insurable Interest in Cargo Insurance Contracts.Edvardas Sinkevičius - 2011 - Jurisprudencija: Mokslo darbu žurnalas 18 (1):161-176.
Individual, Collective and Social Responsibility of the Firm.Paul Pallab Tuomo Takala - 2000 - Business Ethics, the Environment and Responsibility 9 (2):109-118.
Individual, Collective and Social Responsibility of the Firm.Tuomo Takala & Paul Pallab - 2000 - Business Ethics, the Environment and Responsibility 9 (2):109–118.
Media Coverage and Firm Valuation: Evidence From China.Jiwei Wang & Kangtao Ye - 2015 - Journal of Business Ethics 127 (3):501-511.

Analytics

Added to PP index
2019-05-08

Total views
9 ( #923,081 of 2,449,124 )

Recent downloads (6 months)
1 ( #441,480 of 2,449,124 )

How can I increase my downloads?

Downloads

My notes