Economic approaches I: Insurance, costs and benefits

Question 1

What is the Smetters text about?

Answer 1

It is about who should insure against terrorism; private market or the governement?

Question 2

Who does Smetters think should cover terror insurance?

Answer 2

Generally people think that the state should insure, but Smetters disagree. He argues that private companies should pay, but that there is a policy problem preventing companies from holding enough surplus capital due to taxation

Question 3

How did the insurance market change after 9/11?

Answer 3

Before 9/11: terror wasn’t excluded despite the car bomb 8 years earlier. Might have been due to lobbying for subsidy or the expectation that a new attack would be an act of war, whereby it was already excluded

After: was excluded in almost all state’s commercial politics. Though not life insurances (weren’t allowed)

Question 4

Did the insurance market fail a.t. Smetter?

Answer 4

Three factors worth thinking about:

1. premiums would have to be significantly increased
2. samaritan’s dilemma: if the state helped, it would create a moral hazard for ineffective risk taking
3. might be due to low demand, since most landmarks are own by shareholders

Question 5

Which arguments are there for government terror insurance?

Answer 5

1. companies cannot calculate their losses due to lack of time-series evidence
2. the government has better access to sensible information
3. the government will end up paying anyway

Question 6

What defindes the boundary between past and modern time a.t. Bernstein?

Answer 6

The mastery of risk

Question 7

What does it mean that we can manage risk a.t. Bernstein?

Answer 7

It increases the capacity and willingness to run risks, thereby driving the economic system forward
1998

Question 8

How does Bernstein see capitalism?

Answer 8

As the epitome of risk-taking; the growth of trade transformed the principles of gambling into the creation of wealth

Question 9

Does it make sense to insure against terror a.t. Huber?

Answer 9

No, since it is planned, terror should be thought of as danger
2002

Question 10

Which three rationale strategies for managing the consequences of terror does Huber mention?

Answer 10

1. ignorance: its an act of god
2. routinisation: exclude or increase premium
3. state intervention (which Huber think is the most likely)

Question 11

Which two types of intervention does Huber see?

Answer 11

Nationalisation (state insurance) or regulation focusing on precautionary measures.
The best would be to combine the two, since the first skews the market and the second should correct it.

Question 12

Which three components does a state have a.t. Ericson, Doyle and Barry?

Answer 12

It is a country with territory, a nation and a sovereign authority
Uses Canada as example, and in the adds made by the government the state decentres its authority by mobilizing private corporations

2003

Question 13

What is risk a.t. Ericson, Doyle and Barry?

Answer 13

Risk refers to external danger, e.g. natural disasters, technological catastrophes or threatening behaviour by humans

Question 14

Which six principles are there for liberal risk regimes?

Answer 14

Minimal state, free market, educated people willing to take risks, individual responsibility, inequality resulted from risk taking is a choice, the state is a risk in itself but necessary

Question 15

What does the liberal risk regime mean for welfare?

Answer 15

It is a reactive security mea- sure to protect otherwise selfish people who are better off, rather than a proactive well-being measure expressing collective solidarity
Unemployment is e.g. a result of a bad choice made by individuals

Question 16

What is Ericson, Doyle and Barry’s main point?

Answer 16

That the insurance industry should be studied as a governance institution, since they have many of the same goals, uses the same methods (e.g. surveillance)
2003

Question 17

How does private insurance differ from the state?

Answer 17

In the morale: it is not about redistributing wealth but about protecting certain economic interests

Question 18

What does the complexity of the risk systems force?

Answer 18

Trust in the institutions, which creates a bias towards the centre and the central authorities

Question 19

What is the Haufler text about?

Answer 19

She states that business decisions are to some extent based on norms and principles.
This debate has however moved to a global level, e.g. because how firms deal with each other can become a private regime or private authority on how to do insurance

Question 20

Where can we see norms affecting businesses a.t. Haufler?

Answer 20

1. Where businesses lobby governments on issues that affect them, e.g. trade policy
   - traditional focus of IPE
2. business efforts of self-regulation
   - new focus in studies of private regimes

1999

Question 21

What are the assumptions about insurable risks?

Answer 21

Risks are external to the agent
They have large populations
They are calculable
Full information
Independent events (e.g. not terror where several events occur at the same time)

Question 22

What is insurable?

Answer 22

It depends on how a risk is defined and whether it is deemed worth to insure

Question 23

How is insurance a technology of governance?

Answer 23

Firms teach their customers how to avoid risks

Question 24

What does it mean to govern at a distance?

Answer 24

It means to change or shape the society in a way that promotes a certain behavior. You make people think that it is their own idea to do something

Question 25

Who should insure against terrorism?

Answer 25

Huber argues that the state should, since terror is a danger rather than a risk, and because the state have the sensitive knowledge, therefore increasing its change of forecasting Smetters on the other hand argues that the market can insure if taxation is lifted to make a capital surplus possible. If the state insures, it will create moral hazards

Question 26

What is the relationship between risk and insurance?

Answer 26

We run risks voluntarily, and because they are based on decisions, risks are predictable and controllable. This is important for the relation to insurance, because the predictability means that the consequences are calculable. Insurance is a kind of risk management, because companies influence our behavior

Question 27

What does the contract model of insurance entail?

Answer 27

Individuals get less freedom by paying premiums and agreeing to rules, but on the other hand more freedom in the sense of the risk that they can take.

Question 28

How does risks and uncertainties differ?

Answer 28

Risks are calculable, uncertainties are not - therefore only risks can be insured

Question 29

What is the purpose of insurance for the insured?

Answer 29

The freedom to take risks

Question 30

What is the purpose of insurance for the state?

Answer 30

It is the reallocation of wealth for the well-being of its citizens fx with the welfare state

Question 31

What is the law of large numbers on which insurance is based?

Answer 31

if a large enough amount of policy-holders pool risks together, the expected losses can be more easily estimated because their approximation will be (nummerically) very close to the actual losses.

Question 32

What is insurable a.t. Haufler?

Answer 32

The definition of what is insurable varies over time, and this definition is guided by social processes that rely on norms and principles of behaviour rather than objective, universal standards.