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

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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 Classification: 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: 02 Apr 2021 15:47
OAI Identifier: oai:tse-fr.eu:25815
URI: https://publications.ut-capitole.fr/id/eprint/15279
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