This Thursday, I will be giving a talk at the International Conference on Applied Business and Economics (ICABE 2016). Meglena Jeleva organized a session on Natural Disaster Risk Management, where I will be talking, with Bertrand Villeneuve and Jean -Christophe Vergnaud. Slides are available below (pdf version is also online).
The paper with Benoît (which inspired the slides) is Natural catastrophe insurance: How should the government intervene?
An updated version of the joint paper with Benoit Le Maux is online on http://papers.ssrn.com/.
“The present paper develops a new theoretical framework for analyzing the decision to provide or buy insurance against the risk of natural catastrophes. In contrast with conventional models of insurance, the insurer has a non-zero probability of insolvency that depends on the distribution of the risks, the premium rate, and the amount of capital in the company. Among several results, we show that risk-averse policyholders will accept to pay higher rates for a government-provided insurance with unlimited guarantee. However, depending on the correlation between and within the regional risks, a government program can be more attractive to high-correlation than to low correlation areas, which may lead to inefficiencies if the insurance ratings are not appropriately chosen.”