A Continuous-Time Optimal Insurance Design with Costly Monitoring

Hisashi Nakamura () and Koichiro Takaoka ()

Asia-Pacific Financial Markets, 2014, vol. 21, issue 3, 237-261

Abstract: We provide a theoretical and numerical framework to study optimal insurance design under asymmetric information. We consider a continuous-time model where neither the efforts nor the outcome of an insured firm are observable to an insurer. The insured may then cause two interconnected information problems: moral hazard and fraudulent claims. We show that, when costly monitoring is available, an optimal insurance contract distinguishes the one problem from the other. Furthermore, if the insured’s downward-risk aversion is weak and if the participation constraint is not too tight, then a higher level of the monitoring technology can mitigate both problems. Copyright Springer Japan 2014

Keywords: Insurance; Costly monitoring; Moral hazard; Fraudulent claims; D82; D86; G22; G32 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1007/s10690-014-9184-9 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:apfinm:v:21:y:2014:i:3:p:237-261

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/10690/PS2

DOI: 10.1007/s10690-014-9184-9

Access Statistics for this article

Asia-Pacific Financial Markets is currently edited by Jiro Akahori

More articles in Asia-Pacific Financial Markets from Springer, Japanese Association of Financial Economics and Engineering
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().