Increases in Risk and the Optimal Deductible: ABSTRACT

Increases in Risk and the Optimal Deductible: ABSTRACT

Using Arrow's (1971, 1974) model of the optimal (endogenously determined) deductible, this article examines the impact of increases in risk (Rothschild-Stiglitz mean-preserving spreads and Diamond-Stiglitz mean-utility-preserving spreads) and first-order stochastic dominance shifts in the distr...

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Veröffentlicht in:The Journal of risk and insurance 1991-12, Vol.58 (4), p.670
Hauptverfasser: Demers, Fanny, Demers, Michel
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Sprache:eng
Schlagworte:
Expected utility
Insurance coverage
Insurance policies
Normal distribution
Random variables
Risk aversion
Utility functions
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creator Demers, Fanny
Demers, Michel
description Using Arrow's (1971, 1974) model of the optimal (endogenously determined) deductible, this article examines the impact of increases in risk (Rothschild-Stiglitz mean-preserving spreads and Diamond-Stiglitz mean-utility-preserving spreads) and first-order stochastic dominance shifts in the distribution function of losses on the optimal insurance contract between a risk-averse decision-maker and a risk-neutral insurer. In particular, it is found that a first-order stochastic dominance shift in the distribution of losses has generally an ambiguous impact on the deductible. This result raises some doubt about the asymmetric information (signalling) literature's identification of low (high) risk with smaller (greater) demand for insurance.
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source Business Source Complete; Jstor Complete Legacy
subjects Expected utility
Insurance coverage
Insurance policies
Normal distribution
Random variables
Risk aversion
Utility functions
title Increases in Risk and the Optimal Deductible: ABSTRACT
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