Optimal insurance contracts without the non-negativity constraint on indemnities: revisited

Michael Breuer ()

The Geneva Papers on Risk and Insurance Theory, 2006, vol. 31, issue 1, 5-9

Abstract: In the literature on optimal indemnity schedules, indemnities are usually restricted to be non-negative. Keeler [1974] and Gollier [1987] show that this constraint might well bind: insured could get higher expected utility if insurance contracts would allow payments from the insured to the insurer at some losses. This paper extends Collier’s findings by allowing for negative indemnity payments for a broader class of insurers’ cost functions and argues that the indemnity schedule derived here is more appropriate for practical applications (e.g. in health insurance). Copyright Springer Science + Business Media, LLC 2006

Keywords: Optimal insurance; Indemnity; Deductible; Co-insurance (search for similar items in EconPapers)
Date: 2006
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DOI: 10.1007/s10713-006-9463-0

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