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Property Insurance with Conversion Options: Upper Limits and Deductibles

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  • John M. Marshall

    (University of California)

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    Abstract

    The paper compares models of insurance of real property when owners may convert damaged property to another use instead of restoring it to the pre-damage use. First it describes the optimum insurance. The main result is that the deductible and the upper limit are connected by the equation: upper limit plus deductible equals conversion point. An alternative to the full optimum is a policy having a variable upper limit and a fixed deductible. It is interesting for theoretical reasons and for descriptive reality. The comparative statics of the full optimum and the fixed-deductible alternative are essentially the same. In the fixed-deductible model, the response of the upper limit to changes in parameters is always in the same direction but of lesser magnitude than in the full optimum.

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    File URL: http://fmwww.bc.edu/RePEc/es2000/1647.pdf
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    Bibliographic Info

    Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1647.

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    Date of creation: 01 Aug 2000
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    Handle: RePEc:ecm:wc2000:1647

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