Optimal Insurance Design: What Can We Do Without Expected Utility?
AbstractThis paper provides a survey on optimal insurance when insurers and policy holdes have symmetric information about the distribution of potential damages. When transaction costs are proportional to transfers, we show that 1)there is at least one state of the world where no indemnity is paid, 2) the indemnity schedule is deterministic, implying in particular umbrella policies are optimal, and 3) the optimal contract contains a straight deductible. This is proven without assuming expected utility. The use of expected utility generates additional results, e.g. in the case of nonlinear trnsaction costs.
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Bibliographic InfoPaper provided by Toulouse - GREMAQ in its series Papers with number 97.463.
Length: 22 pages
Date of creation: 1997
Date of revision:
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Find related papers by JEL classification:
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
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- Gollier, Christian, 2007. "Optimal expectations with complete markets," IDEI Working Papers 463, Institut d'Économie Industrielle (IDEI), Toulouse.
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