The Economic Theory of Risk and Insurance

Couverture
Columbia University Press, 1901 - 142 pages
 

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Page 116 - Le contrat aléatoire est une convention réciproque dont les effets, quant aux avantages et aux pertes, soit pour toutes les parties, soit pour l'une ou plusieurs d'entre elles, dépendent d'un événement incertain.
Page 67 - But this use of the term seems on the whole not advantageous, because it tends to class the work of management with mere routine superintendence. It is of course true that as a rule a person will not enter on a risky business, unless, other things being equal, he expects to gain from it more than he would in other trades open to him, after his probable losses had been deducted from his probable gains on a fair actuarial estimate.
Page 32 - ... exactly to the average, there would be a certainty in the number of fires, and the only uncertainty would be as to which house would burn. In point of fact, however, in any particular year there will be a variation from the average. According to a well-established law, the probable variation increases only as the square root of the number of cases.
Page 29 - ... passu. This is undoubtedly the way in which the term is ordinarily used. A person who should enter upon an undertaking in which the chances were ninety in a hundred that it would result in failure would undoubtedly be said to run a tremendous risk. But if the term is used in this sense, it will not be true, as I shall attempt to show later on that the special net reward for assuming risk invariably increases as the degree of risk increases. This net premium increases as the uncertainty increases;...
Page 106 - We should define insurance, then, as that social device for making accumulations to meet uncertain losses of capital which is carried out through the transfer of the risks of many individuals to one person or to a group of persons. Wherever there is accumulation for uncertain losses, or wherever there is a transfer of risk, there is one element of insurance; only where these are joined with the combination of risks in a group is the insurance complete.
Page 114 - Over-insurance leads to fraud, full insurance to carelessness, and even partial insurance to some diminution of watchfulness. Whatever increase may occur in the amount of positive loss either through fraud or through carelessness must be deducted from the diminution in negative loss in estimating the net gain which insurance brings to society. The economic significance of insurance in a state is connected with its influence in reducing the burden which the existence of risk imposes on society. So...
Page 114 - ... to some diminution of watchfulness. Whatever increase may occur in the amount of positive loss either through fraud or through carelessness must be deducted from the diminution in negative loss in estimating the net gain which insurance brings to society. The economic significance of insurance in a state is connected with its influence in reducing the burden which the existence of risk imposes on society. So far as the degree of risk is lowered, and the reluctance to assume it is diminished,...
Page 116 - Let us now contrast the workings of insurance. In this case also the contract is a wager. A house owner pays an insurance company fifty dollars, in return for which he is to receive five thousand dollars in case his house burns down within a specified time; just as he might pay a bookmaker fifty dollars and receive five thousand in case a specified horse wins a race.
Page 118 - Again, certain insurance companies in America take risks against fire in factories at very much less than the ordinary rates, on condition that some prescribed precautions are taken, such as providing automatic sprinklers and making the walls and floor solid. The expense incurred in these arrangements is really an insurance premium ; and care must be taken not to count it twice over.
Page 106 - From the community standpoint life insurance may be defined as "that social device for making accumulations to meet uncertain losses through premature death which is carried out through the transfer of the risks of many individuals to one person or a group of persons.

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