Public Self-Insurance and the Samaritan’s Dilemma in a Federation

Tim Lohse, Julio R. Robledo

doi:10.1177/1091142112448417

Public Self-Insurance and the Samaritan’s Dilemma in a Federation

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Tim Lohse

Berlin School of Economics and Law, Social Science Research Center, Berlin, Germany
Julio R. Robledo

Faculty of Business and Economics, Ruhr-University Bochum, Bochum, Germany

書誌事項

公開日: 2012-06-26

権利情報

https://journals.sagepub.com/page/policies/text-and-data-mining-license

DOI

10.1177/1091142112448417

公開者: SAGE Publications

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説明

<jats:p> Motivated by recent disasters, this article analyzes the risk-sharing aspect in a federation. The regions can be hit by a shock leading to losses that occur with an exogenous probability and in a stochastically independent way. The regions can spend effort on self-insurance to reduce the size of the loss. Being part of a federation has two countervailing welfare effects. On one hand, there is the well-known welfare increase due to risk pooling. On the other hand, the self-insurance effort is a public good, because all regions benefit from the reduction of the loss. There exists a Samaritan’s dilemma kind of effect whereby regions reduce their self-insurance effort potentially leading to an overall welfare decrease. The central government can solve this dilemma by committing to fixed rather than to variable transfers. This induces regions that behave noncooperatively to choose the efficient level of self-insurance effort. </jats:p>