Template-Type: ReDIF-Paper 1.0
Title: Optimal Insurance: Dual Utility, Random losses and Adverse Selection
Author-Name: Alex Gershkov
Author-Email: alexg@huji.ac.il
Author-Name: Benny Moldovanu
Author-Email: mold@uni-bonn.de
Author-Name: Philipp Strack
Author-Email: philipp.strack@yale.edu
Author-Name: Mengxi Zhang
Author-Email: mzhang@uni-bonn.de
Classification-JEL: D82
Keywords: Insurance, Dual Utility, Random Loss

Abstract: We study a generalization of the classical monopoly insurance problem under
adverse selection (see Stiglitz [1977]) where we allow for a random distribution
of losses, possibly correlated with the agent’s risk parameter that is private
information. Our model explains patterns of observed customer behavior and
predicts insurance contracts most often observed in practice: these consist of
menus of several deductible-premium pairs, or menus of insurance with coverage
limits-premium pairs. The main departure from the classical insurance literature
is obtained here by endowing the agents with risk-averse preferences that can be
represented by a dual utility functional (Yaari [1987]).

Note: 
Length: 38
Creation-Date: 2023-03
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp399
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2023_399