On the optimality of a straight deductible under belief heterogeneity
Chi, Yichun
text
periodical
gbr
20190101
continuing
eng
20 p.:
This article attempts to extend Arrow's theorem of the deductible to the case of belief heterogeneity, which allows the insured and the insurer to have different beliefs about the distribution of the underlying loss. Like Huberman et al. [(1983) Bell Journal of Economics 14(2), 415426], we preclude ex post moral hazard by asking both parties in the insurance contract to pay more for a larger realization of the loss. It is shown that, ceteris paribus, full insurance above a constant deductible is always optimal for any chosen utility function of a risk-averse insured if and only if the insurer appears more optimistic about the conditional loss given non-zero loss than the insured in the sense of monotone hazard rate order. We derive the optimal deductible level explicitly and then examine how it is affected by the changes of the insured's risk aversion, the insurance price and the degree of belief heterogeneity.
Yichun Chi
MatemÃ¡tica del seguro
Teorema de Arrow
6
Astin bulletin
Belgium : ASTIN and AFIR Sections of the International Actuarial Association
0515-0361
MAP20077000420
01/01/2019 Volumen 49 NÃºmero 1 - enero 2019 , p. 243-262
MAP
190619
20190625124236.0
MAP20190019170
spa