author
ruo jia (ruo.jia@pku.edu.cn) .
hanyang wang (wanghy67@pku.edu.cn) are affiliated with the school of economics, peking university.
jieyu lin (linjy18@mails.tsinghua.edu.cn) is affiliated with the school of economics and management, tsinghua university.
abstract
little is known about how an ex-ante public-private risk-sharing program affects the efficiency of a catastrophe risk market and the behavior of market players. we develop a dynamic game model that analyzes three decision makers—individuals, a private insurer, and a government acting as reinsurer—to derive their optimal pricing, capital, and purchasing decisions for efficient catastrophe risk-sharing. in the equilibrium, government reinsurance addresses private insurance market failure and improves social welfare through the product quality and capital cost channels. the effects of these two channel s wax and wane depending on the market structure. as a tradeoff, government reinsurance may decrease individuals’ expected utilities and increase the insurer's default probability as competition is insufficient in catastrophe insurance markets. in the context of covid-19, we show that government reinsurance can improve the viability and efficiency of pandemic insurance but should be coupled with anti-monopoly and social-distancing policies to mitigate its downside.
keywords:
catastrophe risk management, efficient risk-sharing, government intervention, publicprivate partnership, pandemic risk
jel: d81, g22, g52, h84, q54
download：
public-private pandemic risk-sharing.pdf