Référence

Christian Gollier, « Optimal insurance design of ambiguous risks », Economic Theory, Springer Berlin / Heidelberg, vol. 57, n° 3, novembre 2014, p. 555–576.

Résumé

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.

Codes JEL

  • D81: Criteria for Decision-Making under Risk and Uncertainty
  • G22: Insurance • Insurance Companies • Actuarial Studies

Partenaire de recherche

Risk Attitude

Remplace

Christian Gollier, « Optimal insurance design of ambiguous risks », IDEI Working Paper, n° 718, mai 2012, révision janvier 2013.