Insurance Demand Without the Expected-Utility Paradigm
J. OF RISK AND INSURANCE, Vol. 64 No. 1, March 1997
Posted: 10 Jun 1997
This article focuses on two cornerstone results in insurance economics: Mossin's Theorem on the optimality of full versus partial coverage, and Arrow's Theorem on the optimality of straight deductible policies. Both of these results are examined in a model assuming only risk aversion, and not necessarily expected-utility maximization. The results also are examined with the inclusion of a noninsurable background risk. Arrow's result is robust enough to hold in all of these situations. Mossin's result is shown to hold with a slight weakening, to account for possible "nonsmoothness" of preferences in non-expected-utility models.
JEL Classification: D81, G22
Suggested Citation: Suggested Citation