Pannequin, François <br/><br/>
How Prevention Challenges Monopolistic Insurance Markets: The Non-Equivalent Effects of Insurance and Self-Insurance Obligations 

 -  2024.<br/>							 
<br/><br/> 59 
<br/><br/> In a context of relentlessly increasing frequency of climate risks and natural disasters, public policy has no choice but to try to limit their magnitude. We extend Stiglitz’s insurance monopoly model (Stiglitz, 1977) to examine the effectiveness of three coverage schemes: the presence of self-insurance opportunities, mandatory insurance, or self-insurance. We highlight three main findings. First, the market power of an insurance monopoly is challenged by the existence of self-insurance. We show that, compared to a monopoly market with insurance alone, self-insurance opportunities threaten the insurer, reducing its market power and increasing the welfare of policyholders. Second, in this context, we find that a compulsory insurance requirement has a detrimental effect on the insured, worsening his situation and returning power to the insurer. Finally, the substitutability between insurance and self-insurance leads us to question the effects of self-insurance obligations. Our model shows that compulsory self-insurance and compulsory insurance do not have equivalent effects. While the compulsory self-insurance reduces the size of the insurer’s market, it has no effect on the welfare of the insured. The implications of these public policies are discussed. Classification JEL: D86, D42, G22