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insurance

  • In order to go through with `his’ project Hinkley Point C, Chancellor Osborne of the UK makes a deal with China. The point seems more and more like this: Without China there is no more international investor left over for UK to finance Hinkley Point C. In return, the whole reason why the Chinese want to invest in Hinkley Point C is so that they can actually get the contract for the Hualong on the Bradwell site in UK. Seems like a reasonably strategic from a Chinese point of view – invest in Hinkley Point C, thereby get a ticket to build their first nuclear power plant in a nuclear-renowned country (UK), and this would be their way of buying themselves into the international market. The question is: Does the UK population know that if Hinkley Point C goes through then this does not imply that one nuclear power plant will be build but three, and one of them build by the Chinese? Do they really want to give their control over their electricity bill to international investors, and furthermore the control over their nuclear power plant fleet?
  • This week I will present in St Petersburg, Russia, at the very interesting 4th International Workshop on Natural Resources, Environment and Economic Growth, organized by Department of Economics (European University at St. Petersburg, Russia) with the financial support of ExxonMobil and the research center CORE (Université catholique de Louvain, Belgium). You can find more information HERE. I will be talking about: When does Insurance provide a Contribution to Climate Policy? I will give a more detailed talk about the same topic at the Environmental Seminar in INRA, Nancy, the week after on the 8th October.

Conference updates:

  • Monday (09/28): Conférence de Jean Tirole (Prix Nobel d’Economie 2014) à 15h30 en amphithéâtre Poincaré
    “Climat, chômage, avenir de l’Europe, économie industrielle…”
  • Reminder: The next lunch seminar in environmental and resource economics of PSE and Université Paris Panthéon-Sorbonne will take place Thursday October 1st 12:30-13:30 in room S/3 in the annex of the Maison des Sciences Economiques.
  • Conférence de la  Chaire Finance Durable et Investissement Responsable, 2 novembre 2015, à Paris, de 8h30 à 14h. Auditorium Amundi 91-93, boulevard Pasteur, 75015. More information HERE.
  • Microinsurance faces two problems: Data availability on weather variability; and farmers in SSA don’t trust/understand it very much: LINK
  • Insurance companies in Switzerland try to get customers to provide more information to them (e.g. via digital fitness bracelets) in order to group customers into `active’ and `inactive’. This obviously will affect customers’ insurance costs, but will it also `nudge‘ them towards a better behavior? Is this now  a libertarian means of helping customers to choose? Or a paternalistic means of splitting customers into groups and forcing them to be active? Or the impossible mix between the two? I’ll write more on this soon.
  • Should or shouldn’t we take the market out of conservation? I have discussed this before HERE, and it is a recurring theme. Whenever something crops up here and there then this means it is a particular difficult question without a proper answer yet. A researcher who spent much of his time thinking about this question is Clive Splash, whose contributions you should definitely read if this is a topic that interests you. My main point is that we tend to introduce a market simply BECAUSE there was an issue with the conservation in the first place. Usually, conservation does not work because there are no property rights attached to whatever was supposed to be conserved in the first place, and thus the standard Tragedy of the Commons kicks in. By introducing property rights and creating a market this may actually lead to more conservation. Here the problem is of course whether the market works well, etc. So introducing a market can’t always be an answer – especially if the market cannot attach the `right’ value. There is no simple answer to this, unfortunately.
  • I updated the Environmental Economics calendar with the Paris 1 Environmental Economics Seminars, and also added some further conferences. It seems the calendar, for whatever reason, does not show the conferences after January 2016, but I hope I can find a way to fix this. Windows…

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I am happy to announce that my article “Insurance and Climate-Driven Extreme Events” co-authored with Professor Georg Müller-Fürstenberger (see bottom for more information) from the University of Trier, Germany, has been accepted for publication in the Journal of Economic Dynamics and Control. We would like to thank especially Professor Ireland for his help and comments.

This is a short summary of the main findings of the article:

We investigate how insurance affects agents’ decisions when being faced by endogenous, climate-driven extreme events. This is not only important in order to understand how the possibility of insurance augments mitigation and saving decisions, but it also improves our understanding of how insurance should be provided. Since there are no studies as of now that rely on such an integrated approach, we extend the literature along two lines. Firstly, we develop a neoclassical growth framework with endogenous extreme events and an insurance sector. Secondly, we introduce a simulation method that allows us to explicitly take these extreme events into account and which yields additional numerical insights. In doing so we can fully characterize and quantify the impact of different insurance policies for mitigation and economic growth decisions.

Our analytical results and computational experiments show that i) transparency of the insurance sector is the decisive requisite for abatement activities, implying substantial policy opportunities; ii) a decentralized economy will under-invest in abatement without adequate policy interventions;  iii)  precautionary beliefs on the frequency of extreme events lead to more sustainability; iv) a social security system which prices insurance fairly is preferable to an insurance industry which provides insurance with an overhead.

So why is this important?

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