084020 (M54) A rational approach to pricing of catastrophe insurance : Weimin Dong, Shah, H.C. and Wong F., Journal of Risk and Uncertainty, 1996, Volume 12, nr. 2/3, pp. 201–218

• Publisher: Elsevier Science
• Year: 1997
• Tongue: English
• Weight: 89 KB
• Volume: 19
• Category: Article
• ISSN: 0167-6687
• DOI: 10.1016/s0167-6687(97)83514-7

✦ Synopsis

This article explains how lobbying pressure intensifies tax-transfer inefficiencies in disaster prevention and relief. The social-welfare tradeoff in the government's joint provision of safety regulation and disaster relief is distorted by disinformational lobbying activity by disaster-exposed households and by conflict between principles of horizontal and vertical equity. Horizontal equity presupposes that no group of taxpayers wants to transfer wealth ex ante to equally wealthy disaster-exposed parties. But vertical equity implies that, when disaster strikes, households that were previously able to hide the mitigability of their exposure to a ratable hazard can nevertheless extract sizable transfers from other taxpayers ex post.