Are Compulsory Insurance and Self-Insurance Substitutes or Complements? A Matter of Risk Attitudes
Résumé
This article analyzes the effects of compulsory insurance on the demand for self-insurance. We show that although a risk lover invests neither in insurance nor in self-insurance when insurance is voluntary, she invests in self-insurance when insurance is compulsory. On the contrary, when insurance is mandatory, a risk averter would substitute self-insurance for insurance. Economic policy implications of these antagonistic effects on self-insurance are discussed. \textcopyright 2019, International Association for the Study of Insurance Economics.