Compensation for what ? An analysis of insurance strategies for repairable assets

Koehl, Pierre-François; Villeneuve, Bertrand

Koehl, Pierre-François; Villeneuve, Bertrand (2002), Compensation for what ? An analysis of insurance strategies for repairable assets, Journal of Risk and Uncertainty, 25, 1, p. 47-64. http://dx.doi.org/10.1023/A:1016367314043

Type

Article accepté pour publication ou publié

Date

2002

Journal name

Journal of Risk and Uncertainty

Volume

Number

Publisher

Springer

Pages

47-64

Abstract (EN)

We define a repairable asset as an irreplaceable commodity whose quality is at risk, but can be partly restored at a cost. Examples are houses, automobiles and, especially, health, for which standard monetary approaches are oversimplified. To optimize the value of insurance, the insurer and the insured have to agree upon repair strategies (when to fix the asset and how much) and compensation rules (how much money to receive for other goods). We clarify the role of the consumer's preferences in the properties of the contract, and we highlight the relationship between repair strategies and the super- or submodular structure of the repair technology.

Subjects / Keywords

Risk; Insurance; deductible clause; repairable asset; illiquidity; state dependent utility

JEL

G22 - Insurance; Insurance Companies; Actuarial Studies
D81 - Criteria for Decision-Making under Risk and Uncertainty