A note on loadings and deductibles: can a vicious circle arise?

Elisa Luciano

MPRA Paper from University Library of Munich, Germany

Abstract: In a recently reprinted paper Borch wonders whether an increase in loadings, together with a consequent increase in deductibles, may start a vicoius circle, ad infinitum. This paper rules out the possibility of a vicious circle, in a model à la Borch. First of all, in his setting, increases in costs are not necessarily followed by increases in loadings. Second, increases in loadings are not necessarily followed by increases in deductibles, since in equilibrium insurance may be Giffen. Third, loadings do not increase with deductibles, because the only viable equilibrium is a Stackelberg one.

Keywords: deductibles; insurance; loadings; Stackelberg equilibrium (search for similar items in EconPapers)
JEL-codes: G11 G22 (search for similar items in EconPapers)
Date: 1999
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Published in scandinavian actuarial journal 2 (1999): pp. 157-169

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Related works:
Journal Article: A Note on Loadings and Deductibles: Can a Vicious Circle Arise? (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:59636

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