Optimal Insurance Contracts When Establishing the Amount of Losses Is Costly
AbstractThe problem of establishing the amount of losses covered by public and private insurance is often characterized by asymmetric information, in which the claimant already knows the extent of a loss but this can be demonstrated to the insurer only at a cost. It is shown that a simple arrangement, which provides greater coverage whenever individuals demonstrate high losses, gives claimants an excessive incentive to establish the amount of their losses. This paper determines what insurance claims process, consistent with the form typically employed in existing insurance arrangements, is optimal. The Geneva Papers on Risk and Insurance Theory (1994) 19, 139–152. doi:10.1007/BF01371689
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Bibliographic InfoArticle provided by Palgrave Macmillan in its journal The Geneva Papers on Risk and Insurance Theory.
Volume (Year): 19 (1994)
Issue (Month): 2 (December)
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Postal: Palgrave Macmillan Journals, Subscription Department, Houndmills, Basingstoke, Hampshire RG21 6XS, UK
Other versions of this item:
- Louis Kaplow, 1996. "Optimal Insurance Contracts When Establishing The Amount of Losses is Costly," NBER Working Papers 4290, National Bureau of Economic Research, Inc.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
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