This chapter extends the previous results in regard to demand, granting the insured the ability to reduce the loss magnitude via self-insurance efforts. In general, it is established that self-insurance and index insurance are substitutes, with the level of efforts undertaken being extended in comparison to a situation with a classic insurance being offered. The effect is two fold; on the one hand, efforts are increased because coverage under an index based insurance is smaller than under a classic insurance while further, basic chance and basic risk promote some additional undertaking of efforts.
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