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A note on loadings and deductibles: can a vicious circle arise?

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  • Luciano, elisa

Abstract

In a recently reprinted paper Borch wonders whether an increase in loadings, together with a consequent increase in deductibles, may start a vicoius circle, ad infinitum. This paper rules out the possibility of a vicious circle, in a model à la Borch. First of all, in his setting, increases in costs are not necessarily followed by increases in loadings. Second, increases in loadings are not necessarily followed by increases in deductibles, since in equilibrium insurance may be Giffen. Third, loadings do not increase with deductibles, because the only viable equilibrium is a Stackelberg one.

Suggested Citation

  • Luciano, elisa, 1999. "A note on loadings and deductibles: can a vicious circle arise?," MPRA Paper 59636, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:59636
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    References listed on IDEAS

    as
    1. Dionne, Georges & Eeckhoudt, Louis, 1984. "Insurance and saving: some further results," Insurance: Mathematics and Economics, Elsevier, vol. 3(2), pages 101-110, April.
    2. Borch, Karl, 1975. "Optimal Insurance Arrangements," ASTIN Bulletin, Cambridge University Press, vol. 8(3), pages 284-290, September.
    3. MOSSIN, Jan, 1968. "Aspects of rational insurance purchasing," LIDAM Reprints CORE 23, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    4. Raviv, Artur, 1979. "The Design of an Optimal Insurance Policy," American Economic Review, American Economic Association, vol. 69(1), pages 84-96, March.
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    More about this item

    Keywords

    deductibles; insurance; loadings; Stackelberg equilibrium;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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