Disappointment and the optimal insurance contract
Journal
GENEVA Risk and Insurance Review
Journal Volume
37
Journal Issue
2
Pages
258-284
Date Issued
2012
Author(s)
Abstract
This paper studies the optimal insurance contract under disappointment theory. We show that, when the individuals anticipate disappointment, there are two types of optimal insurance contract. The first type contains a deductible and a coinsurance above the deductible. We find that zero marginal cost is just a sufficient but not a necessary condition for a zero deductible. The second type has no deductible and the optimal insurance starts with full coverage for small losses and includes a coinsurance above an upper value of the full coverage. ? 2012 The International Association for the Study of Insurance Economics.
Subjects
coinsurance
deductible
disappointment
optimal insurance contract
Type
review
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