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Insurance bargaining under ambiguity

Listed author(s):
  • Huang, Rachel J.
  • Huang, Yi-Chieh
  • Tzeng, Larry Y.

This paper investigates the effects of an increase in ambiguity aversion and an increase in ambiguity in an insurance bargaining game with a risk-and-ambiguity-neutral insurer and a risk-and-ambiguity-averse client. Both a cooperative and a non-cooperative bargaining game are examined. We show that, in both games, full coverage is optimal in the presence of ambiguity, and that the optimal premium is higher in the presence of ambiguity than in the absence of it. Furthermore, the optimal premium will increase with both the degree of ambiguity aversion and an increase in ambiguity.

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File URL: http://www.sciencedirect.com/science/article/pii/S0167668713001558
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Article provided by Elsevier in its journal Insurance: Mathematics and Economics.

Volume (Year): 53 (2013)
Issue (Month): 3 ()
Pages: 812-820

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Handle: RePEc:eee:insuma:v:53:y:2013:i:3:p:812-820
DOI: 10.1016/j.insmatheco.2013.10.001
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505554

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