Optimal Insurance Contracts without the Non-Negativity Constraint on Indemnities Revisited
AbstractIn the literature on optimal indemnity schedules, indemnities are usually restricted to be non-negative. Gollier (1987) shows that this constraint might well bind: insured could get higher expected utility if insurance contracts would allow payments from the insured to the insurer at some losses. However, due to the insurers’ cost function Gollier supposes, the optimal insurance contract he derives underestimates the relevance of the non-negativity constraint on indemnities. This paper extends Gollier’s findings by allowing for negative indemnity payments for a broader class of insurers’ cost functions.
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Bibliographic InfoPaper provided by University of Zurich, Socioeconomic Institute in its series Working Papers with number 0406.
Length: 14 pages
Date of creation: Apr 2004
Date of revision:
Publication status: Published in Geneva Risk and Insurance Review 31, 2006, pages 5-9
Insurance; Indemnity; Deductible; Co-Insurance;
Find related papers by JEL classification:
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-02-12 (All new papers)
- NEP-HEA-2006-02-12 (Health Economics)
- NEP-IAS-2006-02-12 (Insurance Economics)
- NEP-UPT-2006-02-12 (Utility Models & Prospect Theory)
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