Can an Economic Approach Solve the High-Level Nuclear Waste Problem

Building on the work of Professors O\u27Hare and Kunreuther, Dr. Inhaber proposes and argues for a non-coercive siting strategy that he calls a reverse Dutch auction

Coping with Stigma: Challenges & Opportunities

This paper discusses several strategies for preventing technological stigma from causing unwarranted bias in public decision making

The Impact of Insurance Prices on Decision-Making Biases: An Experimental Analysis

This paper tests whether the use of endogenous risk categorization by insurers enables consumers to make better-informed decisions even if they do not choose to purchase insurance. We do so by adding a simple insurance market to an experimental test of optimal (Bayesian) updating. In some sessions, no insurance is offered. In others, actuarially fair insurance prices are posted, and a subset of subjects is allowed to purchase this insurance. We find significant differences in the decision rules used depending on whether or not one observes insurance prices. Although the majority of choices correspond to Bayesian updating, the incidence of optimal decisions is higher in sessions with an insurance option. Most subjects given the option to purchase actuarially fair insurance choose to do so, however fewer subjects purchase insurance when the probability of a loss is higher. Working Paper 06-1

Conflicting Views on Fair Siting Processes: Evidence from Austria and the U.S.

The authors maintain that, by granting legitimacy to different notions of fairness and building on common values such as responsibility, it is possible to design siting procedures that promote social cohesion, trust and a sense of fair play

Reflections on U.S. Disaster Insurance Policy for the 21st Century

The devastation caused by hurricanes during the 2004 and 2005 seasons has been unprecedented and is forcing the insurance industry to reevaluate the role that it can play in dealing with future natural disasters in the United States. As shown in Table 1 the four hurricanes that hit Florida in the fall of 2004 -- Charley, Frances, Ivan and Jeanne---and Hurricanes Katrina and Rita in 2005 comprised half of the top 12 disasters with respect to insured losses between 1970 and 2005. On a related note, 18 of the 20 most costly disasters occurred between 1990 and 2005 and 10 occurred in the 21st Century. This context is totally different than the scale of economic loss the country has suffered from natural disasters and other extreme events in the 20th century. The first section of the paper addresses the first question by outlining two principles on which a disaster insurance program should be based. Section 3 then focuses on the second question by analyzing the insurability of a risk and examining the challenges facing the private sector in providing coverage against natural disasters. Section 4 turns to the third question and delineates the opportunities and challenges of a comprehensive disaster insurance program. Section 5 poses a set of open issues that are currently being addressed by a research project on disaster insurance undertaken by the Wharton Risk Center in conjunction with the Insurance Information Institute and Georgia State University. The concluding section summarizes the key issues associated with providing disaster insurance in the 21st century.

Managing Catastrophic Risks Through Insurance and Mitigation

Insurance is the only policy tool in the analyst’s repertoire that can reward individuals for taking loss reduction measures in advance of a disaster by giving them lower premiums while at the same time providing these same policyholders with compensation should they suffer losses from the insured event. In theory insurers could refuse to provide coverage against certain events unless the prospective policyholder undertook certain protective measures to lower the potential losses from the risk in question. Although this was common practice with respect to fire coverage in the 19 th century, insurers have been reluctant to do deny coverage on these grounds today. This paper examines the impact the role that insurance and other policy tools can play in encouraging property owners to take steps to reduce losses from natural hazards such as earthquakes, floods and hurricanes and the impact that these measures will have on the solvency of insurers Three basic questions will be addressed in this regard: What are the necessary and sufficient conditions for property owners to want to adopt cost-effective risk mitigation measures (RMM)s? What impact will mitigation measures have on the profitability and insolvency of insurers and their willingness to pass the expected reduction in losses to property owners? What is the appropriate role of building codes, third party inspections and enforcement mechanisms in encouraging the adoption of mitigation measures on property? The next section of the paper focuses on the demand side by developing a simple model for determining when property owners should adopt cost-effective measures and provides empirical evidence as to why most individuals do not utilize this model. Section III turns to the supply side and investigates under what conditions insurers will want to promote mitigation through premium reductions. It also explores the linkage between mitigation and insurers’ need for financial protection through reinsurance and/or capital market instruments that have recently been introduced. The importance of building codes as a necessary means of enforcing mitigation in a hazard management program is examined in Section IV. The concluding section proposes a plan of research for evaluating the importance of insurance coupled with mitigation and other policy tools for reducing future disaster losses.