Optimal Risk-Sharing and Deductables in Insurance

Knut Aase

No 2006/24, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

Abstract: Risk-sharing in insurance is analyzed, with a view towards explaining the prevalence of deductibles. First we introduce, in a modern setting, the main concepts of the theory of risk-sharing in a group of agents. This theory we apply to the risk-sharing problem between an insurer and an insurance customer. We motivate the development through simple examples, illustrating some of the subtle points of this theory. In order to deduce deductibles endogenously, not explained in the neoclassical model, we separately introduce (i) the insurable asset as a decision variable, (ii) administrative costs, and (iii) moral hazard, and illustrate by examples.

Keywords: Reinsurance Exchange; Equilibrium; Pareto Optimality; Representative Agent; Core Solution; Individual Rationality; Deductibles; Costs; Moral Hazard (search for similar items in EconPapers)
JEL-codes: D50 G22 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2006-12-29
New Economics Papers: this item is included in nep-cfn, nep-ias and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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