Survey_DLM_2011

Abstract

We consider an infinite-period economy with risk-averse policyholders and risk-neutral insurers. All policyholders are infinitely lived and identical with strictly increasing and concave utilitility u from consumption in each period. In each period t, each policyholder j receives a fixed income w and faces a loss of random size L. The insurance market is competitive and insurers simultaneously offer insurance contracts. Insurers can choose the level of transfer to their policyholders after the loss has been realized. In our setting the loss is not verifiable and it must be in the insurer´s self interest to make the promised payment. That ist, the coverage schedule has to be incentive compatible.