Limited Liability and the Demand for Coinsurance by Individuals and Corporations

Andrea Bergesio, Pablo Koch-Medina and Cosimo Munari
Additional contact information
Andrea Bergesio: University of Zurich - Department of Banking and Finance; Swiss Finance Institute
Pablo Koch-Medina: University of Zurich - Department of Banking and Finance; Swiss Finance Institute
Cosimo Munari: University of Zurich - Department of Banking and Finance; Swiss Finance Institute

No 21-57, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Within the context of expected utility and in a discrete loss setting, we provide a complete account of the demand for insurance by strictly-risk averse agents and risk-neutral firms when they enjoy limited liability. When exposed to a bankrupting, binary loss and under actuarially fair prices, individuals and firms will either fully insure or not insure at all. The decision to insure will depend on whether the benefits the insuree derives from insurance after having compensated the damaged party are sufficiently attractive to justify the premium paid. When the loss is nonbinary, even when prices are actuarially fair, any amount of coinsurance can be optimal depending on the nature of the loss.

Keywords: insurance; risk-averse agent; risk-neutral firm; franchise value; limited liability (search for similar items in EconPapers)
JEL-codes: D21 D81 G22 G32 G33 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2021-05
New Economics Papers: this item is included in nep-ias, nep-isf, nep-mic, nep-ore, nep-rmg and nep-upt
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3849959 (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:chf:rpseri:rp2157

Access Statistics for this paper

More papers in Swiss Finance Institute Research Paper Series from Swiss Finance Institute Contact information at EDIRC.
Bibliographic data for series maintained by Ridima Mittal (rps@sfi.ch).