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Insuring non-verifiable losses

  • Doherty, Neil A.
  • Laux, Christian
  • Muermann, Alexander

Insurance contracts are often complex and difficult to verify outside the insurance relation. We show that standard one-period insurance policies with an upper limit and a deductible are the optimal incentive-compatible contracts in a competitive market with repeated interaction. Optimal group insurance policies involve a joint upper limit but individual deductibles and insurance brokers can play a role implementing such contracts for the group of clients. Our model provides new insights and predictions about the determinants of insurance.

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Paper provided by Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 2011/31.

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Date of creation: 2011
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Handle: RePEc:zbw:cfswop:201131
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