Pareto efficient insurance contracts when the insurer's cost function is discontinuous
Dana, Rose-Anne; Carlier, Guillaume (2003), Pareto efficient insurance contracts when the insurer's cost function is discontinuous, Economic Theory, 21, 4, p. 871-893. http://dx.doi.org/10.1007/s00199-002-0281-z
TypeArticle accepté pour publication ou publié
Journal nameEconomic Theory
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Abstract (EN)We consider the problem of efficient insurance contracts when the cost structure includes a fixed cost per claim. We prove existence of efficient insurance contracts and that the indemnity function in such contracts is non-decreasing in the damage. We further show that either there is no insurance, or the indemnity is positive for all losses, or efficient insurance contracts have a unique jump. We study variants of the model and provide a generalization to the case of non expected utilities. Our results are then applied to Townsend's model of deterministic auditing.
Subjects / KeywordsDiscontinuous cost function; Auditing; Efficient insurance contracts
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