The comparative statics of deductible insurance in expected- and non-expected-utility theories

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Abstract

This paper identifies comparative statics results for insurance contracts that distinguish between various models of decision making under risk-specifically, expected utility, rank-dependent expected utility, and weighted utility. Insurance contracts offer full coverage above a deductible. Firms offer premium schedules that give the premium charged as a function of the deductible; households choose both an insurance company and a deductible to maximize utility. A competitive equilibrium requires zero expected profit for firms. We identify changes in the distribution of losses such that the optimal deductible increases for utility representations in a particular class but decreases for some representations outside that class. We give results both for the demand for insurance, as well as for the equilibrium contract.

Original languageEnglish (US)
Pages (from-to)57-72
Number of pages16
JournalThe GENEVA Papers on Risk and Insurance Theory
Volume20
Issue number1
DOIs
StatePublished - Jun 1 1995

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Keywords

  • deductible insurance
  • non-expected utility theory

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting(all)
  • Finance
  • Economics and Econometrics

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