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Optimal Insurance Contracts without the Non-Negativity Constraint on Indemnities Revisited

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  • Michael Breuer

    (Socioeconomic Institute, University of Zurich)

Abstract

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 insurers� cost function Gollier supposes, the optimal insurance contract he derives underestimates the relevance of the non-negativity constraint on indemnities. This paper extends Gollier�s findings by allowing for negative indemnity payments for a broader class of insurers� cost functions.

Suggested Citation

  • Michael Breuer, 2004. "Optimal Insurance Contracts without the Non-Negativity Constraint on Indemnities Revisited," SOI - Working Papers 0406, Socioeconomic Institute - University of Zurich.
    • Handle: RePEc:soz:wpaper:0406
    as

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    File URL: https://www.econ.uzh.ch/apps/workingpapers/wp/wp0406.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Insurance; Indemnity; Deductible; Co-Insurance;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other

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