Insuring Nonverifiable Losses

Publication: Scientific journalJournal articlepeer-review


Insurance contracts are often complex and difficult to verify outside the insurance relation. We show that standard one-period insurance policies with an upper limit and a deductible are the optimal incentive-compatible contracts in a competitive market with repeated interaction. Optimal group insurance policies involve a joint upper limit and individual deductibles; insurance brokers can play a role implementing such contracts for their clients. Our model provides new insights and predictions about the determinants of insurance.
Original languageEnglish
Pages (from-to)283 - 316
JournalReview of Finance
Issue number1
Publication statusPublished - 2015

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