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Optimal insurance contracts without the non-negativity constraint on indemnities: revisited


Breuer, M (2006). Optimal insurance contracts without the non-negativity constraint on indemnities: revisited. GENEVA Risk and Insurance Review, 31(1):5-9.

Abstract

In the literature on optimal indemnity schedules, indemnities are usually restricted to be non-negative. Keeler [1974] and Gollier [1987] show 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. This paper extends Collier’s findings by allowing for negative indemnity payments for a broader class of insurers’ cost functions and argues that the indemnity schedule derived here is more appropriate for practical applications (e.g. in health insurance).

Abstract

In the literature on optimal indemnity schedules, indemnities are usually restricted to be non-negative. Keeler [1974] and Gollier [1987] show 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. This paper extends Collier’s findings by allowing for negative indemnity payments for a broader class of insurers’ cost functions and argues that the indemnity schedule derived here is more appropriate for practical applications (e.g. in health insurance).

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Additional indexing

Item Type:Journal Article, refereed
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:19 October 2006
Deposited On:11 Feb 2008 12:21
Last Modified:06 Dec 2017 13:12
Publisher:Springer
ISSN:1554-964X
Additional Information:The original publication is available at www.springerlink.com.
Publisher DOI:https://doi.org/10.1007/s10713-006-9463-0

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