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On insurance contract design for low probability events

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  • Eric Langlais

Abstract

This paper extends the analysis of insurance contracts design to the case of "low probability events", when there is a probability mass on the event "no accident-zero loss". The optimality of the deductible clause is discussed both at the theoretical and empirical levels.

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File URL: http://economix.fr/pdf/dt/2008/WP_EcoX_2008-33.pdf
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Bibliographic Info

Paper provided by University of Paris West - Nanterre la Défense, EconomiX in its series EconomiX Working Papers with number 2008-33.

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Length: 39 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:drm:wpaper:2008-33

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Keywords: Optimal insurance design; low probability events; insurance coverage for catastrophic risks;

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  1. Howard Kunreuther & Mark Pauly, 2004. "Neglecting Disaster: Why Don't People Insure Against Large Losses?," Journal of Risk and Uncertainty, Springer, vol. 28(1), pages 5-21, January.
  2. Raviv, Artur, 1979. "The Design of an Optimal Insurance Policy," American Economic Review, American Economic Association, vol. 69(1), pages 84-96, March.
  3. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
  4. Christian Gollier & Harris Schlesinger, 1996. "Arrow's theorem on the optimality of deductibles: A stochastic dominance approach (*)," Economic Theory, Springer, vol. 7(2), pages 359-363.
  5. Kocherlakota, Narayana R., 1990. "On tests of representative consumer asset pricing models," Journal of Monetary Economics, Elsevier, vol. 26(2), pages 285-304, October.
  6. Chichilnisky, Graciela, 2000. "An axiomatic approach to choice under uncertainty with catastrophic risks," Resource and Energy Economics, Elsevier, vol. 22(3), pages 221-231, July.
  7. Eeckhoudt, L. & Gollier, C., 1996. "The Insurance of Low Probability Events," Papers 976.423, Toulouse - GREMAQ.
  8. Edi Karni, 1990. "Optimal Insurance: A Nonexpected Utility Analysis," Discussion Paper Serie A 288, University of Bonn, Germany.
  9. Johnson, Eric J, et al, 1993. " Framing, Probability Distortions, and Insurance Decisions," Journal of Risk and Uncertainty, Springer, vol. 7(1), pages 35-51, August.
  10. Shahidi, Niousha & Carlier, Guillaume & Dana, Rose-Anne, 2003. "Efficient Insurance Contracts under Epsilon-Contaminated Utilities," Economics Papers from University Paris Dauphine 123456789/5463, Paris Dauphine University.
  11. G. Carlier & R.A. Dana & N. Shahidi, 2003. "Efficient Insurance Contracts under Epsilon-Contaminated Utilities," The Geneva Risk and Insurance Review, Palgrave Macmillan, vol. 28(1), pages 59-71, June.
  12. Olivier Mahul & Brian D. Wright, 2004. "Implications of Incomplete Performance for Optimal Insurance," Economica, London School of Economics and Political Science, vol. 71(284), pages 661-670, November.
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