This paper identifies comparative statics results for insurance contracts that distinguish between various models of decision making under risk-specifically, expected utility, rank-dependent expected utility, and weighted utility. Insurance contracts offer full coverage above a deductible. Firms offer premium schedules that give the premium charged as a function of the deductible; households choose both an insurance company and a deductible to maximize utility. A competitive equilibrium requires zero expected profit for firms. We identify changes in the distribution of losses such that the optimal deductible increases for utility representations in a particular class but decreases for some representations outside that class. We give results both for the demand for insurance, as well as for the equilibrium contract.
- deductible insurance
- non-expected utility theory
ASJC Scopus subject areas
- Business, Management and Accounting(all)
- Economics and Econometrics