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

Michael Breuer ()
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Michael Breuer: Socioeconomic Institute, University of Zurich

No 406, SOI - Working Papers from 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.

Keywords: Insurance; Indemnity; Deductible; Co-Insurance (search for similar items in EconPapers)
JEL-codes: D80 D81 D89 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2004-04
New Economics Papers: this item is included in nep-hea, nep-ias and nep-upt
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Published in Geneva Risk and Insurance Review 31, 2006, pages 5-9

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Persistent link: https://EconPapers.repec.org/RePEc:soz:wpaper:0406

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