Economic Theory of Risk and Insurance

Title: The Economic Theory Of Risk And Insurance
Author(s): Allan H. Willett
Publisher: University Press Of The Pacific
Pages: 144
Date: 1901, 2002 (Reprint)

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The full text of this book (in .pdf) can be found here (archive copy).
Joined: 01/20/2010
Insurance 101

Marvellous short book that talks about insurance in terms of its influence on capital growth in an economy. Insurance is "capital protecting capital" ... that is we apportion a bit of our national capital to an activity called risk reduction, and this activity is called insurance. In the absence of the institution of insurance, risk 'taints' all other capital, raises the cost of capital, and reduces national productivity. Individuals are mostly risk adverse: a dollar loss hurts much more than the satisfaction from a dollar gained. So we segregate out the losses from the gains in a society, and overall capital becomes productively more employed.

Also, certain individuals are better at managing risks, so we segregate these individuals out from the production of consumer goods and set them up as a separate economic activity, providing the risk-reduction services of the insurance industry.

Willett's arguments are important since we must insure against mismanagement, fraud, misrepresentation, negligence or/and breach of fiduciary duties in our funding agency+ (i.e., in the 'firm' that oversees Franchise Capital Management+).