Insurance and Optimal Growth

Frédéric Gannon (1) , Vincent Touzé (2)

1 EconomiX
2 OFCE - Observatoire français des conjonctures économiques (Sciences Po)

The aim of this paper is to propose a theoretical connection between insurance and economic growth. We develop a simple model to insert microeconomically founded optimal insurance with moral hazard in a standard macroeconomic framework of optimal growth. We characterize the long-run equilibrium, the global dynamics and the evolution of insurance coverage with time. Three types of trajectories are identified: first, a simple dynamics with permanent partial insurance or full insurance, second, one with regime switching converging to a steady state with full or partial insurance and, finally, one with mixed equilibrium.

Domains: Economics and Finance

Frédéric Gannon, Vincent Touzé. Insurance and Optimal Growth. 2007. ⟨hal-00972774⟩