Optimal Insurance Contracts When Establishing the Amount of Losses is Costly

16 Pages Posted: 10 Jul 2007 Last revised: 23 Sep 2010

See all articles by Louis Kaplow

Louis Kaplow

Harvard Law School; National Bureau of Economic Research (NBER)

Date Written: March 1993

Abstract

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.

Suggested Citation

Kaplow, Louis, Optimal Insurance Contracts When Establishing the Amount of Losses is Costly (March 1993). NBER Working Paper No. w4290. Available at SSRN: https://ssrn.com/abstract=478721

Louis Kaplow (Contact Author)

Harvard Law School ( email )

1575 Massachusetts Avenue
Cambridge, MA 02138
United States
617-495-4101 (Phone)
617-496-4880 (Fax)

HOME PAGE: http://www.law.harvard.edu/faculty/directory/facdir.php?id=32&show=bibliography

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
20
Abstract Views
406
PlumX Metrics