Optimal Insurance Contracts When Establishing the Amount of Losses is Costly
Harvard Law School; National Bureau of Economic Research (NBER)
NBER Working Paper No. w4290
The problem of establishing the amount of losses covered by public and private insurance is often characterized by asymmetric information, in which the claimant already knows the extent of a loss but this can be demonstrated to the insurer only at a cost. It is shown that a simple arrangement, which provides greater coverage whenever individuals demonstrate unusually high losses, gives claimants an excessive incentive to establish the amount of their losses. This paper determines what insurance claims process, consistent with the form typically employed in existing insurance arrangements, is optimal.
Number of Pages in PDF File: 16working papers series
Date posted: July 10, 2007
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo2 in 0.610 seconds