Incorporating unawareness into contract theory

Emel Filiz-Ozbay

Games and Economic Behavior, 2012, vol. 76, issue 1, 181-194

Abstract: Asymmetric awareness of the contracting parties regarding the uncertainty surrounding them is proposed as a reason for incompleteness in contractual forms. An insurance problem is studied between a risk neutral insurer, who has superior awareness regarding the nature of the uncertainty, and a risk averse insuree, who cannot foresee all the relevant contingencies. The insurer can mention in a contract some contingencies that the insuree was originally unaware of. It is shown that there are equilibria where the insurer strategically offers incomplete contracts. Competition among insurers who are symmetrically aware of the uncertainty promotes awareness of the insuree.

Keywords: Asymmetric awareness; Insurance (search for similar items in EconPapers)
JEL-codes: D83 D86 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:76:y:2012:i:1:p:181-194

DOI: 10.1016/j.geb.2012.05.009

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