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Corporate insurance design with multiple risks and moral hazard

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  • Laux, Christian

Abstract

The paper provides novel insights on the effect of a firm's risk management objective on the optimal design of risk transfer instruments. I analyze the interrelation between the structure of the optimal insurance contract and the firm's objective to minimize the required equity it has to hold to accommodate losses in the presence of multiple risks and moral hazard. In contrast to the case of risk aversion and moral hazard, the optimal insurance contract involves a joint deductible on aggregate losses in the present setting.

Suggested Citation

  • Laux, Christian, 2008. "Corporate insurance design with multiple risks and moral hazard," CFS Working Paper Series 2008/54, Center for Financial Studies (CFS).
    • Handle: RePEc:zbw:cfswop:200854
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    References listed on IDEAS

    as
    1. Nicolò, Antonio & Pelizzon, Loriana, 2008. "Credit derivatives, capital requirements and opaque OTC markets," Journal of Financial Intermediation, Elsevier, vol. 17(4), pages 444-463, October.
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    8. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring.
    9. Michael Breuer, 2005. "Multiple Losses, EX ANTE Moral Hazard, and the Implications for Umbrella Policies," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 72(4), pages 525-538, December.
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    More about this item

    Keywords

    Multiline Insurance; Umbrella Policies; Integrated Risk Management; Deductible Insurance;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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