IDEAS home Printed from https://ideas.repec.org/p/hal/wpaper/hal-01589993.html

Prevention incentives in long-term insurance contracts

Author

Listed:
  • Renaud Bourlès

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

Abstract

Long-term insurance contracts are widespread, particularly in public health and the labor market. Such contracts typically involve monthly or annual premia which are related to the insured's risk profile. A given profile may change, based on observed outcomes which depend on the insured's prevention efforts. The aim of this paper is to analyze the latter relationship. In a two-period optimal insurance contract in which the insured's risk profile is partly governed by her effort on prevention, we find that both the insured's risk aversion and prudence play a crucial role. If absolute prudence is greater than twice absolute risk aversion, moral hazard justifies setting a higher premium in the first period but also greater premium discrimination in the second period. This result provides insights on the trade-offs between long-term insurance and the incentives arising from risk classification, as well as between inter- and intragenerational insurance.

Suggested Citation

  • Renaud Bourlès, 2025. "Prevention incentives in long-term insurance contracts," Working Papers hal-01589993, HAL.
    • Handle: RePEc:hal:wpaper:hal-01589993
    DOI: 10.1111/jems.12196
    Note: View the original document on HAL open archive server: https://amu.hal.science/hal-01589993v1
    as

    Download full text from publisher

    File URL: https://amu.hal.science/hal-01589993v1/document
    Download Restriction: no
    File URL: https://libkey.io/10.1111/jems.12196?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Carole Bernard & Gero Junike & Thibaut Lux & Steven Vanduffel, 2024. "Cost-efficient payoffs under model ambiguity," Finance and Stochastics, Springer, vol. 28(4), pages 965-997, October.

    More about this item

    Keywords

    ;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:hal-01589993. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.