Repeated insurance relationships in a costly state verification model: With an application to deposit insurance
AbstractWe consider the problem of an insurer who enters into a repeated relationship with a set of risk averse agents in the presence of ex post verification costs. The insurer wishes to minimize the expected cost of providing these agents a certain expected utility level. We characterize the optimal contract between the insurer and the insured agents. We then apply the analysis to the provision of deposit insurance. Our results suggest - in a deposit insurance context - that it may be optimal to utilize the discount window early on, and to make deposit insurance payments only later, or not at all.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Monetary Economics.
Volume (Year): 42 (1998)
Issue (Month): 2 (July)
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Web page: http://www.elsevier.com/locate/inca/505566
Other versions of this item:
- Bruce D. Smith & Cheng Wang, 1997. "Repeated insurance relationships in a costly state verification model: with an application to deposit insurance," Working Papers 574, Federal Reserve Bank of Minneapolis.
- Smith, Bruce D. & Wang, Cheng, 1998. "Repeated Insurance Relationships in a Costly State Verification Model: With an Application to Deposit Insurance," Staff General Research Papers 5194, Iowa State University, Department of Economics.
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