Cyril Morong wrote:
> Alexander Tabarrok wrote:
>
> <Insurance against changes in home prices is for the first time
> now being offered on a limited basis. This is an interesting product in
> that the idea is in large part driven by academics like Robert Shiller.
>
> http://www.forbes.com/2002/08/28/0829whynot.html
>
> see also the chapter on macro markets in Entrepreneurial
> Economics
> www.EntrepreneurialEconomics.org>
>
> I wonder if this will cause moral hazard, that people will not take care of
> their houses as well as they used to, lowering the value.
>
> Cyril Morong
Moral hazard is not a problem because you don't insure against a change in the
price of your home but rather against changes in the price of homes in your
geographic area. In other words, in essence you insure against changes in that
portion of the price of your house that is not under your control which is
exactly what you want. Note that developing these markets has therefore
required advances in the theory and application of price indices.
In the introduction to EE I suggest that similar markets could be used to
create private unemployment insurance. A dentist, for example, could insure
against the possibility of a scientific discovery that eliminated cavities by
insuring against downward changes in the price of a wage index for dentists.
Alex
--
Alexander Tabarrok
Department of Economics, MSN 1D3
George Mason University
Fairfax, VA, 22030
Tel. 703-993-2314
and
Director of Research
The Independent Institute
100 Swan Way
Oakland, CA, 94621
Tel. 510-632-1366
