Optimal Insurance: Dual Utility, Random losses and Adverse Selection

Alex Gershkov (), Benny Moldovanu (), Philipp Strack () and Mengxi Zhang ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: We study a generalization of the classical monopoly insurance problem under adverse selection (see Stiglitz [1977]) where we allow for a random distribution of losses, possibly correlated with the agent’s risk parameter that is private information. Our model explains patterns of observed customer behavior and predicts insurance contracts most often observed in practice: these consist of menus of several deductible-premium pairs, or menus of insurance with coverage limits-premium pairs. The main departure from the classical insurance literature is obtained here by endowing the agents with risk-averse preferences that can be represented by a dual utility functional (Yaari [1987]).

Keywords: Insurance; Dual Utility; Random Loss (search for similar items in EconPapers)
JEL-codes: D82 (search for similar items in EconPapers)
Pages: 38
Date: 2023-03
New Economics Papers: this item is included in nep-com, nep-cta, nep-des, nep-law, nep-mic and nep-upt
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.crctr224.de/research/discussion-papers/archive/dp399 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2023_399

Access Statistics for this paper

More papers in CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany Kaiserstr. 1, 53113 Bonn , Germany.
Bibliographic data for series maintained by CRC Office ().