Optimal Insurance Contracts without the Non-Negativity Constraint on Indemnities Revisited
In the literature on optimal indemnity schedules, indemnities are usually restricted to be non-negative. Gollier (1987) shows 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. However, due to the insurersï¿½ cost function Gollier supposes, the optimal insurance contract he derives underestimates the relevance of the non-negativity constraint on indemnities. This paper extends Gollierï¿½s findings by allowing for negative indemnity payments for a broader class of insurersï¿½ cost functions.
|Date of creation:||Apr 2004|
|Publication status:||Published in Geneva Risk and Insurance Review 31, 2006, pages 5-9|
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