Finding Pareto Optimal Insurance Contracts

Y.M. Ermoliev and Sjur Flåm

Working Papers from International Institute for Applied Systems Analysis

Abstract: This note deals with on-line computation or learning of Pareto optimal insurance contracts. We account for the fact that the loss distribution often is unknown, unavailable, or intractable. Alternatively, the contracting parties could be inexperienced. In both cases loses must be simulated or observed, one at a time, these causing iterated revision of the premium. The mechanical nature of probability calculus thus yields to more tentative procedure, possibly closer to how humans operate or reason in face of risk. Emphasized here is the remarkable simplicity and stability of the resulting procedures. Special attention goes to catastrophic risks and subsidized insurance.

Date: 2000-06
New Economics Papers: this item is included in nep-ias and nep-ind
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Working Paper: Finding Pareto Optimal Insurance Contracts (2001)
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