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Compensation for What? An Analysis of Insurance Strategies for Repairable Assets

Listed author(s):
  • Koehl, Pierre-Francois
  • Villeneuve, Bertrand

We define a repairable asset as an irreplaceable commodity whose quality is at risk, but can be partly restored at a cost. Examples are houses, automobiles and, especially, health, for which standard monetary approaches are oversimplified. To optimize the value of insurance, the insurer and the insured have to agree upon repair strategies (when to fix the asset and how much) and compensation rules (how much money to receive for other goods). We clarify the role of the consumer's preferences in the properties of the contract, and we highlight the relationship between repair strategies and the super- or submodular structure of the repair technology. Copyright 2002 by Kluwer Academic Publishers

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Article provided by Springer in its journal Journal of Risk and Uncertainty.

Volume (Year): 25 (2002)
Issue (Month): 1 (July)
Pages: 47-64

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Handle: RePEc:kap:jrisku:v:25:y:2002:i:1:p:47-64
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  1. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-1277, November.
  2. Karni, Edi, 1983. "Risk Aversion for State-Dependent Utility Functions: Measurement and Applications," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(3), pages 637-647, October.
  3. Eeckhoudt, Louis & Meyer, Jack & Ormiston, Michael B, 1997. "The Interaction between the Demands for Insurance and Insurable Assets," Journal of Risk and Uncertainty, Springer, vol. 14(1), pages 25-39, January.
  4. Raviv, Artur, 1979. "The Design of an Optimal Insurance Policy," American Economic Review, American Economic Association, vol. 69(1), pages 84-96, March.
  5. Selden, Thomas M., 1993. "Should the government provide catastrophic insurance?," Journal of Public Economics, Elsevier, vol. 51(2), pages 241-247, June.
  6. J.M. Bourgeon & P. Picard, 1999. "Reinstatement or insurance payment in corporate fire insurance," THEMA Working Papers 99-46, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  7. Philip J. Cook & Daniel A. Graham, 1977. "The Demand for Insurance and Protection: The Case of Irreplaceable Commodities," The Quarterly Journal of Economics, Oxford University Press, vol. 91(1), pages 143-156.
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