Free riding and insurer carbon-linked investment

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Title:	Free riding and insurer carbon-linked investment
Authors:	Huang, F. W.;Chen, S.;Lin, J. H.
Keywords:	Free riding;Carbon-linked investment;Carbon emission;Insurer interest margin;Policyholder
Date:	2022-03
Issue Date:	2022-02-23 12:11:24 (UTC+8)
Publisher:	Energy Economics
Abstract:	The paper develops a two-insurer contingent claim framework to evaluate their equities. One insurer conducts carbon-linked investment, while the other conducts conventional (non-carbon-linked) investment. The freeriding issue becomes essential because of the carbon-emission externality. We show that the life insurance policyholders are free riders when either the return of carbon-linked or the conventional investment increases. But the cost burden of policyholder protection is the reduced insurer interest margin. The results also apply to the increased carbon-linked investment volatility and the different coronavirus COVID-19 impacts on the two-insurer interest margins. In the soundness test, we show that insurance stability at the cost of insurer profits is less significant when the carbon-linked investor’s barrier increases. Free riding would be intimately relevant to insurance and carbon-emission environments in the barrier option model.
Relation:	Energy Economics 107,105838
DOI:	10.1016/j.eneco.2022.105838
Appears in Collections:	[Graduate Institute & Department of International Business] Journal Article

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