Institutional Quality, Knightian Uncertainty, and Insurability : A Cross-Country Analysis

Author/Editor:

S. Nuri Erbas ; Chera L. Sayers

Publication Date:

July 1, 2006

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Knightian uncertainty (ambiguity) implies presence of uninsurable risks. Institutional quality may be a good indicator of Knightian uncertainty. This paper correlates non-life insurance penetration in 70 countries with income level, financial sector depth, country risk, a measure of cost of insurance, and the World Bank governance indexes. We find that institutional quality-transparency-uncertainty nexus is the dominant determinant of insurability across countries, surpassing the explanatory power of income level. Institutional quality, as it reflects on the level of uncertainty, is the deeper determinant of insurability. Insurability is lower when governance is weaker.

Series:

Working Paper No. 06/179

Subject:

English

Publication Date:

July 1, 2006

ISBN/ISSN:

9781451864397/1018-5941

Stock No:

WPIEA2006179

Format:

Paper

Pages:

15

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