If no one undercut, prices for all goods could remain artificially high. Yet, the incentive for the individual firm (and the individual's loved ones, in this case) is to undercut (or pay). An insurance market provides (a) expert knowledge that keeps the price down, (b) an incentivized group that may be able to affect the likelihood of the insured event, (c) a group to provide financial incentives against risky behaviors, thereby pricing behaviors into the market in the same way motorcycle insurance or certain risky living arrangements get priced into the market via their insurers.
The kidnappers can remain irrational longer than you can stay solvent.
Maybe something like the Russian model makes more sense, if not legally. The most deterrent response is to hunt the kidnapers down and exterminate them, not pay them.
Sounds like a great way to get the hostages killed at the same time.
Maybe it would work _after_ the kidnappers have been paid.
But if the hostage takers are dead and other potential hostage taker know this, it would reduce the risk?
Which is great and all, except now your family member is dead, which I’m sure matters more to you than some game theory.
The result of which is everyone is at more risk, including your family in the future.
To the family members, it matters. From the viewpoint of the governement, I'd say it makes sense.
Marvelous.
True, but nobody is going to not pay and sacrifice their life so that hypothetical future people won't get kidnapped.
People are inclined to pay ransoms, so you would have to make it illegal to pay ransom, which would make a disincentive to reporting kidnappings to the police as kidnappers want.
Interestingly in US paying the ransom was illegal, nowadays they are reverting that, since it was highly problematic and resulted to more deaths for the hostages, and longer hostage times. And in the end the ransom often still was paid.