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Efficient Insurance Contracts under Epsilon-Contaminated Utilities

Author

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  • G. Carlier

    (Ceremade, Université Paris-Dauphine Place du Maréchal De Lattre de Tassigny, 75775 Paris cedex 16, France)

  • R.A. Dana

    (Ceremade, Université Paris-Dauphine Place du Maréchal De Lattre de Tassigny, 75775 Paris cedex 16 , France, e-mail: dana@ceremade.dauphine.fr)

  • N. Shahidi

    (Ceremade, Université Paris-Dauphine Place du Maréchal De Lattre de Tassigny, 75775 Paris cedex 16, France)

Abstract

This paper analyses the qualitative properties of optimal contracts when agents have multiple priors and are uncertainty averse in an infinite state space framework. The case of the epsilon-contamination of a given prior, a basic tool in robustness theory is fully developped. It is shown that if both agents have strictly concave utility index, then if the insurer is less uncertainty averse than the insured, he provides a full insurance contract above a deductible for high values of the loss. The Geneva Papers on Risk and Insurance Theory (2003) 28, 59–71. doi:10.1023/A:1022195815221

Suggested Citation

  • G. Carlier & R.A. Dana & N. Shahidi, 2003. "Efficient Insurance Contracts under Epsilon-Contaminated Utilities," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 28(1), pages 59-71, June.
    • Handle: RePEc:pal:genrir:v:28:y:2003:i:1:p:59-71
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    Citations

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    Cited by:

    1. James Foster & Mark McGillivray & Suman Seth, 2012. "Rank Robustness of Composite Indices: Dominance and Ambiguity," OPHI Working Papers 26b, Queen Elizabeth House, University of Oxford.
    2. Biheng, Noé & Bonnisseau, Jean-Marc, 2015. "Regular economies with ambiguity aversion," Journal of Mathematical Economics, Elsevier, vol. 59(C), pages 24-36.
    3. Dominiak, Adam & Tserenjigmid, Gerelt, 2022. "Ambiguity under growing awareness," Journal of Economic Theory, Elsevier, vol. 199(C).
    4. Christian Gollier, 2014. "Optimal insurance design of ambiguous risks," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 57(3), pages 555-576, November.
    5. Amarante, Massimiliano & Ghossoub, Mario & Phelps, Edmund, 2015. "Ambiguity on the insurer’s side: The demand for insurance," Journal of Mathematical Economics, Elsevier, vol. 58(C), pages 61-78.
    6. Eric LANGLAIS, 2008. "On Insurance Contract Design For Low Probability Events," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 3(2(4)_Summ).
    7. Langlais, Eric, 2010. "Safety and the Allocation of Costs in Large Accidents," MPRA Paper 25710, University Library of Munich, Germany.
    8. Ghossoub, Mario, 2019. "Optimal insurance under rank-dependent expected utility," Insurance: Mathematics and Economics, Elsevier, vol. 87(C), pages 51-66.
    9. Carole Bernard & Shaolin Ji & Weidong Tian, 2013. "An optimal insurance design problem under Knightian uncertainty," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 36(2), pages 99-124, November.
    10. Massimiliano Amarante & Mario Ghossoub, 2016. "Optimal Insurance for a Minimal Expected Retention: The Case of an Ambiguity-Seeking Insurer," Risks, MDPI, vol. 4(1), pages 1-27, March.

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