We developed and experimentally tested an extended version of Mossin’s traditional theoretical demand for insurance for both risk averters and risk lovers. Both the theoretical model and the experimental data show that the demand for insurance is tantamount to an all or nothing choice. This bimodal distribution of decisions requires an appropriate statistical analysis to confront the data with the model. Thus, this article presents two complementary statistical tests. The first one uses a graphical representation of the experimental results along with a χ2 test to assess the general goodness of fit of the theoretical model with the data. The second, an econometric model, complements the analysis by assessing the effects of the contractual parameters and risk attitudes on individual demand for insurance. The econometric results show primarily that an increase in the unit price consists in an exit of the insurance market rather than in a contraction of the coverage: as the unit price increases, risk lovers, followed by risk averters, significantly withdraw from the insurance market as they forgo the full insurance contract. However, from the χ2 test, regardless of their risk attitude, the participants exhibit insufficient demand elasticity to price. Finally, the lack of effect of the fixed cost on risk averters’ demand for partial insurance refutes the inferiority assumption of the demand for insurance.

View the document

Latest Publications

2017RP-03 PR
La surqualification professionnelle chez les diplômés des collèges et des universités : État de la situation au Québec
Brahim Boudarbat et Claude Montmarquette
View the document

2017s-11 WP
The social cost of contestable benefits
Arye Hillman et Ngo Van Long
View the document

2017s-09 WP
Fiscal Surprises at the FOMC
Dean Croushore et Simon van Norden
View the document

2017MO-04 MO
Méthodes avancées d’évaluation d’investissements / Advanced Methods of Investment Evaluation - Tome 2
Marcel Boyer
View the document

2017MO-03 MO
Méthodes avancées d’évaluation d’investissements / Advanced Methods of Investment Evaluation - Tome 1
Marcel Boyer
View the document

Center for Interuniversity Research and Analysis of Organizations
1130 rue Sherbrooke Ouest, suite 1400
Montréal, Québec (Canada) H3A 2M8
(514) 985-4000
(514) 985-4039

© 2017 CIRANO. All rights reserved.

Partner of :