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Monday, August 2 • 2:15pm - 3:45pm
2B1 Innovative Risk Transfer Solution for Extreme Events

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Marcel Freyschmidt, University of St. Gallen; Martin Eling, Institute of Insurance Economics; Alexander Braun, University of St. Gallen

We develop a microeconomic model of the decision-making problem faced by companies, (re)insurers, capital market and a sovereign government. We look at how different hedging strategies of (re)insurers affect the hedging of firms. Furthermore, we analyze how (and where) the government can influence an existing market equilibrium to protect taxpayers. We argue that the theory by Arrow and Lind (1970), according to which governments should evaluate projects from a risk-neutral perspective, does not necessarily apply to financially constrained countries. Especially the latter's budgets would benefit from a hedging model, which pays out exactly when the taxpayer suffers an enormous loss. Therefore, it helps avoid crowding out of government spending in other areas such as education, social security etc. as well as an excessive debt financing of stimulus packages.


Steve Taylor

Asst. Prof, NJIT

avatar for Marcel Freyschmidt

Marcel Freyschmidt

University of St. Gallen

Martin Eling

University of St. Gallen

Monday August 2, 2021 2:15pm - 3:45pm EDT