Insurance bargaining under ambiguity
Journal
Insurance: Mathematics and Economics
Journal Volume
53
Journal Issue
3
Pages
812-820
Date Issued
2013
Author(s)
Abstract
This paper investigates the effects of an increase in ambiguity aversion and an increase in ambiguity in an insurance bargaining game with a risk-and-ambiguity-neutral insurer and a risk-and-ambiguity-averse client. Both a cooperative and a non-cooperative bargaining game are examined. We show that, in both games, full coverage is optimal in the presence of ambiguity, and that the optimal premium is higher in the presence of ambiguity than in the absence of it. Furthermore, the optimal premium will increase with both the degree of ambiguity aversion and an increase in ambiguity. ? 2013 Elsevier B.V.
Subjects
Ambiguity
Ambiguity aversion
Cooperative bargaining
Insurance bargaining
Non-cooperative bargaining
Type
journal article