Efficient Insurance Contracts under Epsilon-Contaminated Utilities

G. Carlier, R.A. Dana and N. Shahidi
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G. Carlier: Ceremade, Université Paris-Dauphine Place du Maréchal De Lattre de Tassigny, 75775 Paris cedex 16, France
R.A. Dana: Ceremade, Université Paris-Dauphine Place du Maréchal De Lattre de Tassigny, 75775 Paris cedex 16 , France, e-mail: dana@ceremade.dauphine.fr
N. Shahidi: Ceremade, Université Paris-Dauphine Place du Maréchal De Lattre de Tassigny, 75775 Paris cedex 16, France

The Geneva Risk and Insurance Review, 2003, vol. 28, issue 1, 59-71

Abstract: This paper analyses the qualitative properties of optimal contracts when agents have multiple priors and are uncertainty averse in an infinite state space framework. The case of the epsilon-contamination of a given prior, a basic tool in robustness theory is fully developped. It is shown that if both agents have strictly concave utility index, then if the insurer is less uncertainty averse than the insured, he provides a full insurance contract above a deductible for high values of the loss. The Geneva Papers on Risk and Insurance Theory (2003) 28, 59–71. doi:10.1023/A:1022195815221

Date: 2003
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