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Optimal insurance contracts without the non-negativity constraint on indemnities: revisited


  • Michael Breuer

    (Socioeconomic Institute, University of Zurich, Hottingerstr 10, 8032 Zurich, Switzerland, e-mail:


In the literature on optimal indemnity schedules, indemnities are usually restricted to be non-negative. Keeler [1974] and Gollier [1987] show 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. This paper extends Collier's findings by allowing for negative indemnity payments for a broader class of insurers' cost functions and argues that the indemnity schedule derived here is more appropriate for practical applications (e.g. in health insurance). The Geneva Risk and Insurance Review (2006) 31, 5–9. doi:10.1007/s10713-006-9463-0

Suggested Citation

  • Michael Breuer, 2006. "Optimal insurance contracts without the non-negativity constraint on indemnities: revisited," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 31(1), pages 5-9, July.
  • Handle: RePEc:pal:genrir:v:31:y:2006:i:1:p:5-9

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    References listed on IDEAS

    1. Gollier, Christian & Jullien, Bruno & Treich, Nicolas, 2000. "Scientific progress and irreversibility: an economic interpretation of the 'Precautionary Principle'," Journal of Public Economics, Elsevier, vol. 75(2), pages 229-253, February.
    2. Kenneth J. Arrow & Anthony C. Fisher, 1974. "Environmental Preservation, Uncertainty, and Irreversibility," The Quarterly Journal of Economics, Oxford University Press, vol. 88(2), pages 312-319.
    3. Singh, Nirvikar, 1991. "Posterior-preserving information improvements and principal-agent relationships," Journal of Economic Theory, Elsevier, vol. 55(1), pages 192-202, October.
    4. Green, Jerry R. & Stokey, Nancy L., 2007. "A two-person game of information transmission," Journal of Economic Theory, Elsevier, vol. 135(1), pages 90-104, July.
    5. Robert A. Jones & Joseph M. Ostroy, 1984. "Flexibility and Uncertainty," Review of Economic Studies, Oxford University Press, vol. 51(1), pages 13-32.
    6. Henry, Claude, 1974. "Investment Decisions Under Uncertainty: The "Irreversibility Effect."," American Economic Review, American Economic Association, vol. 64(6), pages 1006-1012, December.
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