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Author: Mario Ghossoub Publisher: ISBN: Category : Languages : en Pages : 39
Book Description
In Arrow's (1971) classical problem of optimal insurance design, a linear deductible schedule is optimal for an Expected-Utility (EU) maximizing decision maker (DM), if the premium depends on the indemnity's actuarial value, if the DM and the insurer share the same probabilistic beliefs about the realizations of the random loss, and under the classical constraints that, in each state of the world, the indemnity is nonnegative and does not exceed the value of the loss. Raviv (1979) re-examined Arrow's problem and concluded that the presence of a deductible is due to both the nonnegativity constraint on the indemnity and the variability in the cost of insurance. In an effort to test this statement, Gollier (1987) relaxes the nonnegativity constraint and argues that the existence of a deductible is only due to the variability in the cost of insurance. In this paper, we test whether the intuition behind Gollier's result still holds under more general preferences for the DM and the insurer. We consider a setting of ambiguity (one-sided and then two-sided) and a setting of belief heterogeneity. We drop the nonnegativity constraint and assume no cost (or a fixed cost) to the insurer, and we derive closed-form analytical solutions to the problems that we formulate. In particular, we show that an optimal indemnity (resp., retention) no longer includes a deductible provision (resp., is not equal to the realized loss). Moreover, the optimal indemnity (resp., retention) can be negative (resp., higher than the realized loss) for small values of the loss, or in case of no loss. This is in line with the intuition behind Gollier's finding in the case of belief homogeneity and no ambiguity.
Author: Mario Ghossoub Publisher: ISBN: Category : Languages : en Pages : 39
Book Description
In Arrow's (1971) classical problem of optimal insurance design, a linear deductible schedule is optimal for an Expected-Utility (EU) maximizing decision maker (DM), if the premium depends on the indemnity's actuarial value, if the DM and the insurer share the same probabilistic beliefs about the realizations of the random loss, and under the classical constraints that, in each state of the world, the indemnity is nonnegative and does not exceed the value of the loss. Raviv (1979) re-examined Arrow's problem and concluded that the presence of a deductible is due to both the nonnegativity constraint on the indemnity and the variability in the cost of insurance. In an effort to test this statement, Gollier (1987) relaxes the nonnegativity constraint and argues that the existence of a deductible is only due to the variability in the cost of insurance. In this paper, we test whether the intuition behind Gollier's result still holds under more general preferences for the DM and the insurer. We consider a setting of ambiguity (one-sided and then two-sided) and a setting of belief heterogeneity. We drop the nonnegativity constraint and assume no cost (or a fixed cost) to the insurer, and we derive closed-form analytical solutions to the problems that we formulate. In particular, we show that an optimal indemnity (resp., retention) no longer includes a deductible provision (resp., is not equal to the realized loss). Moreover, the optimal indemnity (resp., retention) can be negative (resp., higher than the realized loss) for small values of the loss, or in case of no loss. This is in line with the intuition behind Gollier's finding in the case of belief homogeneity and no ambiguity.
Author: Georges Dionne Publisher: Springer Science & Business Media ISBN: 1461401550 Category : Business & Economics Languages : en Pages : 1133
Book Description
This new edition of the Handbook of Insurance reviews the last forty years of research developments in insurance and its related fields. A single reference source for professors, researchers, graduate students, regulators, consultants and practitioners, the book starts with the history and foundations of risk and insurance theory, followed by a review of prevention and precaution, asymmetric information, risk management, insurance pricing, new financial innovations, reinsurance, corporate governance, capital allocation, securitization, systemic risk, insurance regulation, the industrial organization of insurance markets and other insurance market applications. It ends with health insurance, longevity risk, long-term care insurance, life insurance financial products and social insurance. This second version of the Handbook contains 15 new chapters. Each of the 37 chapters has been written by leading authorities in risk and insurance research, all contributions have been peer reviewed, and each chapter can be read independently of the others.
Author: Peter Zweifel Publisher: Springer Science & Business Media ISBN: 3540685405 Category : Business & Economics Languages : en Pages : 539
Book Description
This is the most complete text available on the economics of health behavior and health care delivery. Appropriate both for advanced undergraduate and beginning graduate students of economics, this text provides the key analytical tools required to understand current research. Issues discussed include the "cost explosion" in health care, the power of medical associations, the search for remuneration systems with favorable incentives, and technological change in medicine. Rather than simplifying the issues facing today’s healthcare systems, the book models existing complexities as they are, adapting economics to reflect the views of the average person.
Author: Georges Dionne Publisher: Springer Science & Business Media ISBN: 9401711682 Category : Business & Economics Languages : en Pages : 536
Book Description
For a number of years, I have been teaching and doing research in the economics of uncertainty, information, and insurance. Although it is now possible to find textbooks and books of essays on uncertainty and in formation in economics and finance for graduate students and researchers, there is no equivalent material that covers advanced research in insurance. The purpose of this book is to fill this gap in literature. It provides original surveys and essays in the field of insurance economics. The contributions offer basic reference, new material, and teaching supple ments to graduate students and researchers in economics, finance, and insurance. It represents a complement to the book of readings entitled Foundations of Insurance Economics - Readings in Economics and Finance, recently published by the S.S. Huebner Foundation of Insurance Education. In that book, the editors (G. Dionne and S. Harrington) disseminate key papers in the literature and publish an original survey of major contributions in the field.
Author: Louis Eeckhoudt Publisher: Princeton University Press ISBN: 1400829216 Category : Business & Economics Languages : en Pages : 245
Book Description
An understanding of risk and how to deal with it is an essential part of modern economics. Whether liability litigation for pharmaceutical firms or an individual's having insufficient wealth to retire, risk is something that can be recognized, quantified, analyzed, treated--and incorporated into our decision-making processes. This book represents a concise summary of basic multiperiod decision-making under risk. Its detailed coverage of a broad range of topics is ideally suited for use in advanced undergraduate and introductory graduate courses either as a self-contained text, or the introductory chapters combined with a selection of later chapters can represent core reading in courses on macroeconomics, insurance, portfolio choice, or asset pricing. The authors start with the fundamentals of risk measurement and risk aversion. They then apply these concepts to insurance decisions and portfolio choice in a one-period model. After examining these decisions in their one-period setting, they devote most of the book to a multiperiod context, which adds the long-term perspective most risk management analyses require. Each chapter concludes with a discussion of the relevant literature and a set of problems. The book presents a thoroughly accessible introduction to risk, bridging the gap between the traditionally separate economics and finance literatures.
Author: Mario Ghossoub Publisher: ISBN: Category : Languages : en Pages : 27
Book Description
We re-examine the problem of budget-constrained demand for insurance indemnification when the insured and the insurer disagree about the likelihoods associated with the realizations of the insurable loss. For ease of comparison with the classical literature, we adopt the original setting of Arrow (1971), but allow for divergence in beliefs between the insurer and the insured; and in particular for singularity between these beliefs, that is, disagreement about zero-probability events. We do not impose the no sabotage condition on admissible indemnities. Instead, we impose a state-verification cost that the insurer can incur in order to verify the loss severity, which rules out ex post moral hazard issues that could otherwise arise from possible misreporting of the loss by the insured. Under a consistency requirement between these beliefs that is weaker than the Monotone Likelihood Ratio (MLR) condition, we characterize the optimal indemnity and show that it has a simple two-part structure: full insurance on an event to which the insurer assigns zero probability, and a variable deductible on the complement of this event.
Author: Massimiliano Amarante Publisher: ISBN: Category : Languages : en Pages : 33
Book Description
In the classical Expected-Utility framework, a problem of optimal insurance design with a premium constraint is equivalent to a problem of optimal insurance design with a minimum expected retention constraint. When the insurer has ambiguous beliefs represented by a non-additive probability measure, as in Schmeidler (1989), this equivalence no longer holds. A problem of optimal insurance design with a premium constraint determined based on the insurer's ambiguous beliefs is not equivalent to a problem of optimal insurance design with a minimum expected retention determined based on the insurer's ambiguous beliefs. Recently, Amarante, Ghossoub, and Phelps (2014) examined the problem of optimal insurance design with a premium constraint when the insurer has ambiguous beliefs. In particular, they showed that when the insurer is ambiguity-seeking, with a concave distortion of the insured's probability measure, then the optimal indemnity schedule is a state-contingent deductible schedule, in which the deductible depends on the state of the world only through the insurer's distortion function. In this paper, we examine the problem of optimal insurance design with a minimum expected retention constraint, in the case where the insurer is ambiguity-seeking. We obtain the aforementioned result of Amarante, Ghossoub, and Phelps (2014) and the classical result of Arrow (1971) as special cases.
Author: Zuo Quan Xu Publisher: ISBN: Category : Languages : en Pages : 33
Book Description
Bernard et al. (2015) study an optimal insurance design problem where an individual's preference is of the rank-dependent utility (RDU) type, and show that in general an optimal contract covers both large and small losses. However, their contracts suffer from a problem of moral hazard for paying more compensation for a smaller loss. This paper addresses this setback by exogenously imposing the constraint that both the indemnity function and the insured's retention function be increasing with respect to the loss. We characterize the optimal solutions via calculus of variations, and then apply the result to obtain explicitly expressed contracts for problems with Yaari's dual criterion and general RDU. Finally, we use a numerical example to compare the results between ours and that of Bernard et al. (2015).
Author: Mario Ghossoub
Author: Mario Ghossoub
Author: Christian Gollier
Author: Georges Dionne
Author: Peter Zweifel
Author: Georges Dionne
Author: Louis Eeckhoudt
Author: Mario Ghossoub
Author: Massimiliano Amarante
Author: Eugene Gurenko
Author: Zuo Quan Xu