Insuring Nonverifiable Losses

Neil A. Doherty, Christian Laux and Alexander Muermann

Review of Finance, 2015, vol. 19, issue 1, 283-316

Abstract: Insurance contracts are often complex and difficult to verify outside the insurance relation. We show that standard one-period insurance policies with an upper limit and a deductible are the optimal incentive-compatible contracts in a competitive market with repeated interaction. Optimal group insurance policies involve a joint upper limit and individual deductibles; insurance brokers can play a role implementing such contracts for their clients. Our model provides new insights and predictions about the determinants of insurance.

Date: 2015
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Citations: View citations in EconPapers (3)

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