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The Comparative Statics of Deductible Insurance in Expected- and Non-Expected-Utility Theories

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  • Edward E. Schlee

    (Department of Economics, Arizona State University, 85287-3806 Tempe AZ)

Abstract

This paper identifies comparative statics results for insurance contracts that distinguish between various models of decision making under risk—specifically, expected utility, rank-dependent expected utility, and weighted utility. Insurance contracts offer full coverage above a deductible. Firms offer premium schedules that give the premium charged as a function of the deductible; households choose both an insurance company and a deductible to maximize utility. A competitive equilibrium requires zero expected profit for firms. We identify changes in the distribution of losses such that the optimal deductible increases for utility representations in a particular class but decreases for some representations outside that class. We give results both for the demand for insurance, as well as for the equilibrium contract. The Geneva Papers on Risk and Insurance Theory (1995) 20, 57–72. doi:10.1007/BF01098958

Suggested Citation

  • Edward E. Schlee, 1995. "The Comparative Statics of Deductible Insurance in Expected- and Non-Expected-Utility Theories," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 20(1), pages 57-72, June.
    • Handle: RePEc:pal:genrir:v:20:y:1995:i:1:p:57-72
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    Cited by:

    1. Henri Loubergé, 1998. "Risk and Insurance Economics 25 Years After," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 23(4), pages 540-567, October.

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