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Identifier to cite or link to this item: https://hdl.handle.net/10086/23119

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Title
A Continuous-Time Optimal Insurance Design with Costly Monitoring
Creator
Creator Name
Nakamura, Hisashi Nakamura, Hisashi
中村, 恒 中村, 恒
Affiliation
Affiliation Name
Hitotsubashi University
Creator Name
Takaoka, Koichiro Takaoka, Koichiro
高岡, 浩一郎 高岡, 浩一郎
Affiliation
Affiliation Name
Hitotsubashi University
Key Word
Insurance
Costly monitoring
Moral hazard
Exaggerated claims
JEL
D82
D86
G22
G32
Abstract
We provide a theoretical and numerical framework to study optimal insurance properties for players' general utility forms. We consider a continuous-time model where neither the efforts nor the outcome of an insured firm are observable to an insurer. The insured may then cause two interconnected information problems: moral hazard and exaggerated claims. We show that, when costly monitoring is available, an optimal insurance contract distinguishes between the two information problems. Furthermore, if the insured's downward-risk aversion is weak and if the participation constraint is not too tight, then a higher level of the monitoring technology can mitigate both problems.
Publisher
Graduate School of Commerce and Management, Hitotsubashi University
Issued Date
2012-07
Language
English(eng)
Resource Type
technical report
Version Type
VoR
Is Part OfRelation -
Related Title
Working paper ; No. 140
Number of Pages
24
Appears in Collections
Working Paper / School of Business Administration, Hitotsubashi University Business School
URL
https://hdl.handle.net/10086/23119