How Compulsory Insurance Triggers Self-Insurance Among Risk Lovers? An Experimental Evidence
François Pannequin, avec Corcos A. and C. Montmarquette
Abstract: As shown by Pannequin and Corcos (2019), when insurance is compulsory, risk averters adjust (by substituting) their self-insurance behavior to compensate for the level (too high or too low) of the compulsory coverage. By contrast, even though they would refuse to invest in any voluntary hedging scheme, risk lovers freely invest in loss-reduction to supplement compulsory partial insurance coverage. While compulsory insurance and self-insurance are substitutes for risk averters, they are complements for risk lovers. We propose an experimental test of these predictions.