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

_IMF Working Papers, July 1, 2006_

## Source details

**Canonical URL:** [Institutional Quality, Knightian Uncertainty, and Insurability: A Cross-Country Analysis](https://www.imf.org/en/publications/wp/issues/2016/12/31/institutional-quality-knightian-uncertainty-and-insurability-a-cross-country-analysis-19381)

## Other formats

- [Markdown version](/en/publications/wp/issues/2016/12/31/institutional-quality-knightian-uncertainty-and-insurability-a-cross-country-analysis-19381/index.md)
- [Structured JSON version](/en/publications/wp/issues/2016/12/31/institutional-quality-knightian-uncertainty-and-insurability-a-cross-country-analysis-19381/index.json)
- [Bundle manifest](/en/publications/wp/issues/2016/12/31/institutional-quality-knightian-uncertainty-and-insurability-a-cross-country-analysis-19381/bundle-manifest.json)

## Bibliographic details
- Authors: S. Nuri Erbas, Chera L. Sayers
- Published: July 1, 2006
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451864397.001

---

### Summary
- Knightian uncertainty (ambiguity) implies presence of uninsurable risks.
- Institutional quality may be a good indicator of Knightian uncertainty.
- The 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.
- The institutional quality–transparency–uncertainty nexus is identified as the dominant determinant of insurability across countries, surpassing the explanatory power of income level.
- Insurability is lower when governance is weaker.

### Methodology and Scope
- Cross-country empirical analysis covering non-life insurance penetration across 70 countries.
- Explanatory variables: income level, financial sector depth, country risk, a measure of cost of insurance, and the World Bank governance indexes.

### Key Findings
- Institutional quality, as it reflects on the level of uncertainty, is the deeper determinant of insurability.
- The institutional quality–transparency–uncertainty nexus dominates income level in explaining cross-country differences in insurability.
- Weaker governance is associated with lower insurability.

### Policy Implications
- Strengthening institutional quality and transparency can improve insurability by reducing Knightian uncertainty.
- Reforms aimed at improving governance could have a larger effect on insurance market penetration than measures focused solely on income or financial sector depth.

---

## Content in this bundle

- **_wp06179**
  - [_wp06179 (Markdown version)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2006/_wp06179.pdf.md){rel="alternate" type="text/markdown"}
  - [_wp06179 (PDF)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2006/_wp06179.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/institutional-quality-knightian-uncertainty-and-insurability-a-cross-country-analysis-19381_