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When is utilitarian welfare higher under insurance risk pooling?

Chatterjee, Indradeb and Macdonald, Angus S. and Tapadar, Pradip and Thomas, R. Guy (2018) When is utilitarian welfare higher under insurance risk pooling? In: Mathematical and Statistical Methods for Actuarial Sciences and Finance. Springer, Cham, Switzerland, pp. 219-223. ISBN 978-3-319-89823-0. E-ISBN 978-3-319-89824-7. (doi:10.1007/978-3-319-89824-7_40) (KAR id:66894)


This paper focuses on the effects of bans on insurance risk classification on utilitarian social welfare. We consider two regimes: full risk classification, where insurers charge the actuarially fair premium for each risk, and pooling, where risk classification is banned and for institutional or regulatory reasons, insurers do not attempt to separate risk classes, but charge a common premium for all risks. For the case of iso-elastic insurance demand, we derive sufficient conditions on higher and lower risks’ demand elasticities which ensure that utilitarian social welfare is higher under pooling than under full risk classification. Empirical evidence suggests that these conditions may be realistic for some insurance markets.

Item Type: Book section
DOI/Identification number: 10.1007/978-3-319-89824-7_40
Uncontrolled keywords: social welfare; elasticity of demand; risk pooling
Subjects: Q Science > QA Mathematics (inc Computing science)
Divisions: Divisions > Division of Computing, Engineering and Mathematical Sciences > School of Mathematics, Statistics and Actuarial Science
Depositing User: Pradip Tapadar
Date Deposited: 02 May 2018 13:13 UTC
Last Modified: 09 Dec 2022 09:20 UTC
Resource URI: (The current URI for this page, for reference purposes)

University of Kent Author Information

Chatterjee, Indradeb.

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Tapadar, Pradip.

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Thomas, R. Guy.

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