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Insurance law and incomplete contracts
[Droit de l'assurance et contrats incomplets]

Author

Listed:
  • Jean-Marc Bourgeon

    (X-DEP-ECO - Département d'Économie de l'École Polytechnique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris, ECO-PUB - Economie Publique - AgroParisTech - Université Paris-Saclay - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Pierre Picard

    (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - Groupe ENSAE-ENSAI - Groupe des Écoles Nationales d'Économie et Statistique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - Groupe ENSAE-ENSAI - Groupe des Écoles Nationales d'Économie et Statistique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique, X - École polytechnique - IP Paris - Institut Polytechnique de Paris)

Abstract

We analyze how insurance law can mitigate moral hazard by allowing insurers to reduce or cancel coverage in some circumstances. We consider an incomplete contract setting in which the insurer may obtain information related to the policyholder's behavior through a costly audit of the circumstances of the loss. Court decisions are based on a standard of proof such as the balance of probabilities. We show that an optimal insurance law brings efficiency gains compared to the no‐audit case. We also highlight the conditions under which the burden of proof should be on the insured, provided that insurers are threatened with sanctions for bad faith.

Suggested Citation

  • Jean-Marc Bourgeon & Pierre Picard, 2020. "Insurance law and incomplete contracts [Droit de l'assurance et contrats incomplets]," Post-Print hal-03084187, HAL.
    • Handle: RePEc:hal:journl:hal-03084187
    DOI: 10.1111/1756-2171.12356
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    Cited by:

    1. Dominique Demougin & Benjamin Bental, 2025. "Procedural vs. Substantive Approaches in Non-Comprehensive Contracts," CESifo Working Paper Series 11861, CESifo.

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