Nondiversification Traps in Catastrophe Insurance Markets

• 成果类型: Article
• 署名作者: Ibragimov, Rustam; Jaffee, Dwight; Walden, Johan
• 署名单位: Harvard University; University of California System; University of California Berkeley
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhn021
• 发表日期: 2009
• 页码: 959
• 关键词: DISTRIBUTIONS; earthquakes; diversification; uncertainty; BEHAVIOR; losses; prices; RISK

摘要

We develop a model for markets for catastrophic risk. The model explains why insurance providers may choose not to offer insurance for catastrophic risks and not to participate in reinsurance markets, even though there is a large enough market capacity to reach full risk sharing through diversification in a reinsurance market. This is a nondiversification trap. We show that nondiversification traps may arise when risk distributions have heavy left tails and insurance providers have limited liability. When they are present, there may be a coordination role for a centralized agency to ensure that risk sharing takes place.