Optimal dividend strategies with time-inconsistent preferences

Shumin Chen, Zhongfei Li and Yan Zeng

Journal of Economic Dynamics and Control, 2014, vol. 46, issue C, 150-172

Abstract: This paper studies the optimal dividend strategies of an insurance company when the manager has time-inconsistent preferences. We consider the problem for a naive manager and a sophisticated manager, and analytically derive the optimal dividend strategies when claim sizes follow an exponential distribution. Our results show that the manager with time-inconsistent preferences tends to pay out dividends earlier than her time-consistent counterpart and that the sophisticated manager is more inclined to pay out dividends than the naive manager. Furthermore, we extend these results to the case with claim sizes following a mixed exponential distribution, and provide a numerical analysis to reveal the sensitivity of the optimal dividend strategies to changes in the premium, claims and surplus volatility.

Keywords: Optimal dividend strategy; Time preference; Hyperbolic discounting rate; Time-inconsistent; Insurance company (search for similar items in EconPapers)
JEL-codes: C61 G22 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:46:y:2014:i:c:p:150-172

DOI: 10.1016/j.jedc.2014.06.018

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