Saturday, September 03, 2005
THE PITFALLS OF SUBSIDISED INSURANCE
This piece
pinpoints one of the principal causes for the colossal loss of life and property in New Orleans in the wake of Hurricane Katrina.
It is the classic case of a 'well-intentioned' Governement initiative proving to be counter-productive. Government provides heavily subsidised insurance against flood. As a result,people heedlessly built seaside dwellings without a care in the world,and are now paying a price for it.
Without Govt intervention, the proverbial Invisible Hand of the Market would have mitigated the damage.
Private insurance firms might have insisted on high premiums for providing cover to property in flood-prone areas, thereby making people think twice before constructing houses close to the seafront.
Ofcourse, such a market-based solution makes little sense to India, as vulnerable fisherfolk in our country can't afford private insurance.
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This piece
pinpoints one of the principal causes for the colossal loss of life and property in New Orleans in the wake of Hurricane Katrina.
It is the classic case of a 'well-intentioned' Governement initiative proving to be counter-productive. Government provides heavily subsidised insurance against flood. As a result,people heedlessly built seaside dwellings without a care in the world,and are now paying a price for it.
Without Govt intervention, the proverbial Invisible Hand of the Market would have mitigated the damage.
Private insurance firms might have insisted on high premiums for providing cover to property in flood-prone areas, thereby making people think twice before constructing houses close to the seafront.
Ofcourse, such a market-based solution makes little sense to India, as vulnerable fisherfolk in our country can't afford private insurance.
Labels: economics
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