Optimal Insurance Contracts When Establishing The Amount of Losses is Costly
AbstractThe problem of establishing the amount of losses covered by public and private insurance is often characterized by asymmetric information, in which the claimant already knows the extent of a loss but this can be demonstrated to the insurer only at a cost. It is shown that a simple arrangement, which provides greater coverage whenever individuals demonstrate unusually high losses, gives claimants an excessive incentive to establish the amount of their losses. This paper determines what insurance claims process, consistent with the form typically employed in existing insurance arrangements, is optimal.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4290.
Date of creation: Mar 1993
Date of revision:
Publication status: published as The Geneva Papers on Risk and Insurance Theory, vol. 19, no. 2, pp. 139-152, December 1994
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Other versions of this item:
- Louis Kaplow, 1994. "Optimal Insurance Contracts When Establishing the Amount of Losses Is Costly," The Geneva Risk and Insurance Review, Palgrave Macmillan, Palgrave Macmillan, vol. 19(2), pages 139-152, December.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
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