Michael Breuer () (Socioeconomic Institute, University of Zurich)
Abstract
In 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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Publisher Info
Paper 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 Handle: RePEc:soz:wpaper:0406
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