Catastrophe Insurance, Capital Markets, and Uninsurable Risks

@inproceedings{Jaffee1997CatastropheIC,
  title={Catastrophe Insurance, Capital Markets, and Uninsurable Risks},
  author={Dwight M. Jaffee and Thomas R. Russell},
  year={1997}
}
This paper examines the causes of the failure of the private market for catastrophe insurance and examines some public solutions. Although the standard explanations of insurance market failure (adverse selection and moral hazard, large imprecise risks) are present, we argue that the primary explanation for the failure of this market lies in the inability of insurance companies to arrange for the level of capital necessary to settle a large loss. We examine four reasons for this: a) accounting… CONTINUE READING

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