The design of an optimal insurance contract for irreplaceable commodities

Rachel J. Huang, Larry Y. Tzeng

研究成果: 雜誌貢獻期刊論文同行評審

3 引文 斯高帕斯(Scopus)


This paper discusses optimal insurance contract for irreplaceable commodities. To describe the dual impacts on individuals when a loss occurs to the insured irreplaceable commodities, we use a state-dependent and bivariate utility function, which includes both the monetary wealth and sentimental value as two arguments. We show that over (full, partial) insurance is optimal when a decrease in sentimental value will increase (not change, decrease, respectively) the marginal utility of monetary wealth. Moreover, a non-zero deductible exists even without administration costs. Furthermore, we demonstrate that a positive fixed reimbursement is optimal if (1) the premium is actuarially fair, (2) the monetary loss is a constant, and (3) the utility function is additively separable and the marginal utility of money is higher in the loss state than in the no-loss state. We also characterize comparative statics of fixed-reimbursement insurance under an additively separable preference assumption.

頁(從 - 到)11-21
期刊GENEVA Risk and Insurance Review
出版狀態已出版 - 7月 2006


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