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This course analyses the nature and problem of risk and uncertainty and consumers preferences regarding risk and risk taking. It examines the basic principles of risk and insurance, and the description of the characteristics of main types of insurance, (both life and general). The course includes an introduction to the structure and operation of insurance markets, (both local and international) and the function of insurance firms within the financial system. It covers the general principles of insurance underwriting and pricing, claims management and claims reserving process within the regulatory regime of the insurance industry.
The course uses the toolkit of intermediate microeconomics to analyse risk-bearing by individual decision makers, and the functioning of insurance markets. Attention will be given to an analysis of risk itself, and of consumers’ preferences regarding risk and risk-taking. This will lead to a theoretical analysis of the demand for insurance. The course examines elements of the supply of insurance, and how risk pooling and risk sharing can lead to Pareto efficient outcomes. The basic fundamentals of premium calculation are also considered.Finally, the course looks at the cases of asymmetric information and fraud in insurance markets.
The objectives of the course are:1. Demonstrate an understanding of how the presence of risk changes behaviour in decision makingenvironments.2. Be able to define and utilize the concept of risk aversion.3. Understand how the demand for and the supply of insurance interact in a market place, both with and without symmetric information.
ECON207 RP: ECON208
FINC345
ECON208
Students must attend one activity from each section.
Richard Watt
ECON/FINC345 can best be described as a course in Financial Economics. For that reason, it is co-coded ECON and FINC. The course is designated as having no specific reliance on calculus. This creates quite a challenge in regards possible text-books and readings, since the very nature of financial economics in general and the economic theory of risk and insurance in particular is, at its heart, best explored and understood mathematically, and so all of the text-books and published literature dedicated to this topic is inherently mathematical. In order to meet the challenge of covering the material using only concepts from intermediate microeconomics (mainly graphs), no specific text-book or supporting reading can be offered that covers the entire course. That said, students who are willing to engage with a certain degree of mathematical treatment could consider consulting the following books:1. The Microeconomics of Insurance, by R. Rees and A. Wambach, published by Now Publishers (2008). Available as a free pdf online.2. The Economics of Risk and Insurance, by S. Hun Seog, published by Wiley-Blackwell (2010).3. Economic and Financial Decisions Under Risk, by L. Eeckhoudt, C. Gollier and H. Schlesinger, published by Princeton University Press (2005).For all others, the lack of a single external source of readings to support learning implies that the classes and tutorials are all the more important, and those students are very strongly encouraged to attend all of those meetings. The material on risk-bearing is generally included as a chapter in most intermediate microeconomics text-books using a “light-touch” mathematical discourse. For example, I suggest you look at the following:1. Microeconomics: Principles and Analysis, by F. Cowell, published by Oxford University Press (2005); Chapter 8.2. Microeconomic Theory: Basic Principles and Extensions, by W. Nicholson, published by Thompson Learning (2002); Chapter 8.3. Microeconomics, by J. Perloff, R. Smith and D. Round, published by Pearson (2014); Chapter 17 (In this book, “uncertainty” and “risk” are considered to be synonymous).
Domestic fee $946.00
International fee $4,363.00
* All fees are inclusive of NZ GST or any equivalent overseas tax, and do not include any programme level discount or additional course-related expenses.
This course will not be offered if fewer than 10 people apply to enrol.
For further information see Department of Economics and Finance .