Optimal Insurance Policy Indemnity Schedules
AbstractWe focus on two commonly observed insurance policy provisions: upper limits on coverage and deductibles. We suggest that upper limits on coverage result from the effective limited liability obtained through the bankruptcy statutes. We show that absent moral hazard, if the administrative cost structure has fixed costs and scale economies, deductibles are not optimal. But the optimal contractual form leads to a moral hazard problem, which deductibles control.
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Bibliographic InfoArticle provided by The RAND Corporation in its journal Bell Journal of Economics.
Volume (Year): 14 (1983)
Issue (Month): 2 (Autumn)
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Web page: http://www.rje.org
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- Alma Cohen & Rajeev Dehejia, 2003.
"The Effect of Automobile Insurance and Accident Liability Laws in Traffic Fatalities,"
NBER Working Papers
9602, National Bureau of Economic Research, Inc.
- Cohen, Alma & Dehejia, Rajeev, 2004. "The Effect of Automobile Insurance and Accident Liability Laws on Traffic Fatalities," Journal of Law and Economics, University of Chicago Press, vol. 47(2), pages 357-93, October.
- Carlier, Guillaume & Dana, Rose-Anne, 2002. "Insurance Contracts with deductibles and upper limits," Economics Papers from University Paris Dauphine 123456789/6771, Paris Dauphine University.
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