The Economic Theory of Risk and Insurance
Columbia University Press, 1901 - 142 pages
A detailed exploration of economic risk and insurance, covering topics such as the nature, classes, costs, and rewards of risk, as well as the economic costs and benefits of insurance.
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accidental loss actual loss affected Alfred Marshall amount of capital amount of loss ance ascer assume the risk assuming risk assumption of risk average capital and labor capitalist capitalist-entrepreneur chance of loss commodity competition consider consumption cost of risk created degree of risk degree of uncertainty determined distinction disutility duction dynamic changes dynamic losses dynamic risk economic activity entire entrepreneur evident existence of risk exposed extra reward hazardous industries hazardous investment ideal static income increase incur risk influence of risk insurance companies insurance fund investor less marginal method monopoly mutual companies nature number of losses obtain occur Perfect competition person possible premium preventive measure probable variation producer's surplus productivity of capital profit pure interest rate of interest realized reduced residual claimant result reward for assuming reward for risk-taking risk involved safe investments speculator static adjustment sumers tainty tion transfer of risk uncer wealth
Page 120 - 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 71 - 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 36 - ... 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 33 - ... 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 110 - 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 118 - 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 118 - ... 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 120 - 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 122 - 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 110 - 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.