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Property Insurance with Conversion Options: Upper Limits and Deductibles

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  • John M. Marshall

    (University of California)

Abstract

The paper compares models of insurance of real property when owners may convert damaged property to another use instead of restoring it to the pre-damage use. First it describes the optimum insurance. The main result is that the deductible and the upper limit are connected by the equation: upper limit plus deductible equals conversion point. An alternative to the full optimum is a policy having a variable upper limit and a fixed deductible. It is interesting for theoretical reasons and for descriptive reality. The comparative statics of the full optimum and the fixed-deductible alternative are essentially the same. In the fixed-deductible model, the response of the upper limit to changes in parameters is always in the same direction but of lesser magnitude than in the full optimum.

Suggested Citation

  • John M. Marshall, 2000. "Property Insurance with Conversion Options: Upper Limits and Deductibles," Econometric Society World Congress 2000 Contributed Papers 1647, Econometric Society.
  • Handle: RePEc:ecm:wc2000:1647
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