Foundations of Insurance Economics: Readings in Economics and Finance.

• Author: Kashi Nath Tiwari

This book is a research guide in economic theory to all the researchers in economics and finance. The authors of the collected papers in this volume are eminent academicians, who analyze the foundations of (insurance) economic theory with masterly expertise. The academicians, practitioners, and policy makers will find this book of great interest, which covers the insurance economics since its inception during early 1960s. This book is definitely a "must" reading for all the researchers in economics as it presents, applies, and analyzes the fundamentals of economic principles with rigor. Insurance economics is a vast area and is quite multidisciplinary in nature as it includes the disciplines of law, medicine, health science, psychology, and sociology. The main thrust of this volume is on property-liability insurance. It would be very difficult to include theoretical foundations and empirical results into one volume with a fair treatment to both. The contributions in this book have a sound base in theoretical modeling. The editors may consider preparing a companion volume with contributions by academicians and practitioners from all walks of life, where the results of this book's theoretical models have been empirically tested.

The volume is divided into nine sections: Introduction; Utility, Risk, and Risk Aversion; Demand for Insurance; Insurance and Resource Allocation; Moral Hazard; Adverse Selection; Market Structure and Organization Form; Insurance Pricing; and Insurance Regulation. The thoughtful introductory essay by Dionne and Harrington is a scholarly work that presents the history of insurance economics and analyzes its theoretical foundations. In addition to the stimulating and thought-provoking introduction by the editors, the volume contains thirty-three papers previously published in the prestigious journals.

Resolved and unresolved issues associated with the choice under uncertainty have been examined by M. Machina who attempts to draw important implications for normative economics. He puts the relevancy of the probability theory to a rigorous test, and provides a colorful description of the expected utility model and framing effects. J. Pratt's paper deals with the various facets of risk aversion: local risk aversion, comparative risk aversion, increasing and decreasing risk aversion, and proportional risk aversion. In their first paper, M. Rothschild and J. Stiglitz claim that the addition of uncorrelated noise to a random...