Pareto efficient insurance contracts when the insurer's cost function is discontinuous

Guillaume Carlier and Rose-Anne Dana

Economic Theory, 2003, vol. 21, issue 4, 893 pages

Abstract: We consider the problem of efficient insurance contracts when the cost structure includes a fixed cost per claim. We prove existence of efficient insurance contracts and that the indemnity function in such contracts is non-decreasing in the damage. We further show that either there is no insurance, or the indemnity is positive for all losses, or efficient insurance contracts have a unique jump. We study variants of the model and provide a generalization to the case of non expected utilities. Our results are then applied to Townsend's model of deterministic auditing. Copyright Springer-Verlag Berlin Heidelberg 2003

Keywords: Keywords and Phrases: Efficient insurance contracts; Discontinuous cost function; Auditing.; JEL Classification Numbers: C61; G22. (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (42)

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DOI: 10.1007/s00199-002-0281-z

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