Disaster Risk Financing through Taxation: A Framework for Regional Participation in Collective Risk-Sharing

We consider an economy composed of different risk profile regions wishing to be hedged against a disaster risk using multi-region catastrophe insurance. Such catastrophic events inherently have a systemic component; we consider situations where the insurer faces a non-zero probability of insolvency. To protect the regions against the risk of the insurer's default, we introduce a public-private partnership between the government and the insurer. When a disaster generates losses exceeding the total capital of the insurer, the central government intervenes by implementing a taxation system to share the residual claims. In this study, we propose a theoretical framework for regional participation in collective risk-sharing through tax revenues by accounting for their disaster risk profiles and their economic status.

Publication Details

Journal
ArXiv.org
Published
2025-06-23
Primary Topic
Insurance and Financial Risk Management
Type
article
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article

Disaster Risk Financing through Taxation: A Framework for Regional Participation in Collective Risk-Sharing

ArXiv.org
Insurance and Financial Risk Management
article

Disaster Risk Financing through Taxation: A Framework for Regional Participation in Collective Risk-Sharing

article en

Abstract

We consider an economy composed of different risk profile regions wishing to be hedged against a disaster risk using multi-region catastrophe insurance. Such catastrophic events inherently have a systemic component; we consider situations where the insurer faces a non-zero probability of insolvency. To protect the regions against the risk of the insurer's default, we introduce a public-private partnership between the government and the insurer. When a disaster generates losses exceeding the total capital of the insurer, the central government intervenes by implementing a taxation system to share the residual claims. In this study, we propose a theoretical framework for regional participation in collective risk-sharing through tax revenues by accounting for their disaster risk profiles and their economic status.

ArXiv.org
Openalex Percentile: Top 40%
Insurance and Financial Risk Management
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Disaster Risk Financing through Taxation: A Framework for Regional Participation in Collective Risk-Sharing · ArXiv.org (2025) | TGRS Research Map | TGRS