Optimal insurance design of ambiguous risks

Gollier, Christian (2012) Optimal insurance design of ambiguous risks. TSE Working Paper, n. 12-303

[img]
Preview
Text
Download (233kB) | Preview
Official URL: http://tse-fr.eu/pub/25815

Abstract

We examine the characteristics of the optimal insurance contract under linear transaction cost and an ambiguous distribution of losses. Under the standard expected utility model, we know from Arrow (1965) that it contains a straight deductible. In this paper, we assume that the policyholder is ambiguity-averse in the sense of Klibanoff, Marinacci and Mukerji (2005). The optimal contract depends upon the structure of the ambiguity. For example, if the set of
possible priors can be ranked according to the monotone likelihood ratio order, the optimal contract contains a disappearing deductible. We also show that the policyholder’s ambiguity aversion can reduce the optimal insurance coverage.

Item Type: Monograph (Working Paper)
Language: English
Date: May 2012
JEL codes: D81 - Criteria for Decision-Making under Risk and Uncertainty
G22 - Insurance; Insurance Companies
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse Capitole
Site: UT1
Date Deposited: 09 Jul 2014 17:25
Last Modified: 07 Mar 2018 13:22
OAI ID: oai:tse-fr.eu:25815
URI: http://publications.ut-capitole.fr/id/eprint/15279

Actions (login required)

View Item View Item

Downloads

Downloads per month over past year