This article studies the effect of preferences on an individual's optimal choice between insurance demand and self-insurance in a risk context and then in an ambiguous context. The innovative idea in this paper is to introduce ambiguity about the effectiveness of self-insurance to understand the nature of the relationship between insurance demand and self-insurance demand. We show that an increase in risk aversion increases the demand for insurance and decreases the demand for self-insurance. However, when risk is introduced on the effectiveness of self-insurance, we show that the individual still prefers self-insurance to market insurance. We also show that when ambiguity is introduced on the efficacy of self-insurance, the individual always prefers market insurance to self-insurance. Finally, we determine the conditions under which the individual's self-insurance effort is higher or lower under ambiguity than risk.
This article examines the determinants of willingness to pay (WTP) for flood insurance, focusing on the role of information and information sources. We use data from a September 2022 field survey of 593 individuals in urban Burkina Faso. We find that 71.3% of individuals are willing to spend money on insurance. But many individuals have a lower willingness to pay than the expected loss. This suggests that individuals would appreciate insurance cover, but do not have sufficient income to pay the insurance premium. We also find that being well informed about flood risk increases the likelihood of paying the expected loss for insurance. However, obtaining flood information from television increases WTP whereas radio does not. These results suggest the need to take information sources into account when developing effective communication policies against these risks. Another result is that recourse to the family and risk aversion reduce PAD. Finally, trust in insurers and ambiguity aversion increase individuals' chances of paying the expected loss for insurance.
Mot(s) clé(s)
Natural disasters, Flood risk; Insurance, Willingness to pay; Information
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