Welfare consequences of persistent climate prediction errors on insurance markets against natural hazards
This paper studies the welfare consequences of the friction between two groups, those with and those without rational expectations, in an incomplete insurance market. We validate this friction empirically and test the existence of additional heterogeneity in the probability of belonging to the grou...
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Universidade de São Paulo
2019
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oai:doaj.org-article:adb707f9857541d88f29b897c7c5401e2021-11-24T14:26:25ZWelfare consequences of persistent climate prediction errors on insurance markets against natural hazards10.1590/0101-41614922grl0101-41611980-5357https://doaj.org/article/adb707f9857541d88f29b897c7c5401e2019-06-01T00:00:00Zhttps://www.revistas.usp.br/ee/article/view/115312https://doaj.org/toc/0101-4161https://doaj.org/toc/1980-5357 This paper studies the welfare consequences of the friction between two groups, those with and those without rational expectations, in an incomplete insurance market. We validate this friction empirically and test the existence of additional heterogeneity in the probability of belonging to the group which makes persistent mistakes on the anticipation of climate events using econometric models. The econometric models further suggest that the probability of belonging to this group varies significantly by sociodemographic attributes of respondents and by the geophysical attributes of their places of residence. Based on this evidence, we develop a two-period model of private insurance under uncertainty with endogenous prices. By including a central planner providing a technology for access to accurate information, our example illustrates that public intervention (via taxation) would only be feasible if public expenditure in the provision of this technology did not exceed 9.188% of the aggregate income earned by agents with inaccurate expectations. Gilvan Ramalho GuedesRodrigo RaadLucélia RaadUniversidade de São PauloarticleClimate uncertaintyRisk aversionInsurance ContractsRiver floodingSubjective probabilityEconomics as a scienceHB71-74ENPTEstudos Econômicos, Vol 49, Iss 2 (2019) |
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DOAJ |
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EN PT |
| topic |
Climate uncertainty Risk aversion Insurance Contracts River flooding Subjective probability Economics as a science HB71-74 |
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Climate uncertainty Risk aversion Insurance Contracts River flooding Subjective probability Economics as a science HB71-74 Gilvan Ramalho Guedes Rodrigo Raad Lucélia Raad Welfare consequences of persistent climate prediction errors on insurance markets against natural hazards |
| description |
This paper studies the welfare consequences of the friction between two groups, those with and those without rational expectations, in an incomplete insurance market. We validate this friction empirically and test the existence of additional heterogeneity in the probability of belonging to the group which makes persistent mistakes on the anticipation of climate events using econometric models. The econometric models further suggest that the probability of belonging to this group varies significantly by sociodemographic attributes of respondents and by the geophysical attributes of their places of residence. Based on this evidence, we develop a two-period model of private insurance under uncertainty with endogenous prices. By including a central planner providing a technology for access to accurate information, our example illustrates that public intervention (via taxation) would only be feasible if public expenditure in the provision of this technology did not exceed 9.188% of the aggregate income earned by agents with inaccurate expectations.
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| format |
article |
| author |
Gilvan Ramalho Guedes Rodrigo Raad Lucélia Raad |
| author_facet |
Gilvan Ramalho Guedes Rodrigo Raad Lucélia Raad |
| author_sort |
Gilvan Ramalho Guedes |
| title |
Welfare consequences of persistent climate prediction errors on insurance markets against natural hazards |
| title_short |
Welfare consequences of persistent climate prediction errors on insurance markets against natural hazards |
| title_full |
Welfare consequences of persistent climate prediction errors on insurance markets against natural hazards |
| title_fullStr |
Welfare consequences of persistent climate prediction errors on insurance markets against natural hazards |
| title_full_unstemmed |
Welfare consequences of persistent climate prediction errors on insurance markets against natural hazards |
| title_sort |
welfare consequences of persistent climate prediction errors on insurance markets against natural hazards |
| publisher |
Universidade de São Paulo |
| publishDate |
2019 |
| url |
https://doaj.org/article/adb707f9857541d88f29b897c7c5401e |
| work_keys_str_mv |
AT gilvanramalhoguedes welfareconsequencesofpersistentclimatepredictionerrorsoninsurancemarketsagainstnaturalhazards AT rodrigoraad welfareconsequencesofpersistentclimatepredictionerrorsoninsurancemarketsagainstnaturalhazards AT luceliaraad welfareconsequencesofpersistentclimatepredictionerrorsoninsurancemarketsagainstnaturalhazards |
| _version_ |
1718415008994426880 |