Research on incentive mechanism of the pharmaceutical and chemical enterprises' compulsory environmental pollution insurance in China

Chen Xinghai, Zhao Xingxiang, Yang Linzhi, Zhan Chunxia
2015 Journal of Chemical and Pharmaceutical Research   unpublished
The pharmaceutical & chemical enterprises belong to high environmental risk, traditional pharmaceutical & chemical industry is even known as the largest source of pollution, even in the event of pollution accidents, easy to pollution environment. The implementation of environmental pollution liability insurance has lasted more than two years, which has achieved positive social repercussions. In this mode of operation, the pharmaceutical & chemical enterprises would pay lower fines directly to
more » ... fines directly to the government if the premium is too high, and but if the premium is too low, which means that the insurance company will take great risks, and therefore the key to the problem that the risk-sharing mechanisms is unreasonable in the both sides of insurance. Based on the risk-sharing contract model between the insurer and the pharmaceutical & chemical enterprises, this article analyzes that the dynamic incentive mechanism should be taken by the insurance company when moral hazard and adverse selection exist in pharmaceutical & chemical enterprises at the same time. This paper discusses two stages dynamic game exists in risk sharing by the game and principal-agent theory. Then the insurer can predict the loss distribution of next year according to the default frequency occurs in 1 year, and can judge optimal effort level of the Pharmaceutical & chemical enterprises , then can decide whether to continue the insurance or the next premium. The insurance companies could less the information asymmetry between the pharmaceutical & chemical enterprises and them, and also could identify clearly the risk status of the enterprise by monitoring internal data and external data of the pharmaceutical & chemical enterprises such as history management data, as well as customer feedback, which could provide data support to make different premium rate. It could provide further theoretical foundation for the insurer who designs the reasonable incentive contract.
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