Quick Search:

uzh logo
Browse by:
bullet
bullet
bullet
bullet

Zurich Open Repository and ArchiveĀ 

Permanent URL to this publication: http://dx.doi.org/10.5167/uzh-52174

Breuer, Michael (2003). Multiple Losses, Ex-Ante Moral Hazard, and the Non-Optimality of the Standard Insurance Contract. Working paper series / Socioeconomic Institute No. 302, University of Zurich.

[img]
Preview
PDF
331kB

Abstract

Under certain conditions the optimal insurance policy will offer full coverage above a deductible, as Arrow and others have shown long time ago. Interestingly, the same design of insurance policies applies in case of a single loss and ex-ante moral hazard. However, many insurance policies provide coverage against a variety of losses and the possibilities for the insured to affect the probabilities of each possible loss might be substantially different. The optimal design of a insurance contract providing coverage against different losses therefore should generally differ from the standard form under moral hazard. The paper concentrates on the conditions under which the standard insurance contract holds under moral hazard and more than one loss. It gives some evidence that many insurance contracts should be split up. The main result is, that the relative changes of probabilities due to precautious activities are decisive. On the other hand, under moral hazard it is rarely ever optimal to combine two losses in one insurance contract prescribing only a single deductible for both losses if both losses can occur simultaneously.

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Socioeconomic Institute (former)
DDC:330 Economics
JEL Classification:D80, D82
Language:English
Date:April 2003
Deposited On:29 Nov 2011 22:32
Last Modified:09 Jul 2012 05:02
Series Name:Working paper series / Socioeconomic Institute
Official URL:http://www.econ.uzh.ch/wp.html

Users (please log in): suggest update or correction for this item

Repository Staff Only: item control page