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Medical insurance with rank-dependent utility

Ryan, Matthew; Vaithianathan, R.

Description

A well-known result in the medical insurance literature is that zero coinsurance is never second-best for insurance contracts subject to moral hazard. We replace the usual expected utility assumption with a version of the rank-dependent utility (RDU) model that has greater experimental support. When consumers exhibit such preferences, we show that zero co-insurance may in fact be optimal, especially for low-risk consumers. Indeed, it is even possible that the first-best and second-best...[Show more]

CollectionsANU Research Publications
Date published: 2003
Type: Journal article
URI: http://hdl.handle.net/1885/85654
Source: Economic Theory
DOI: 10.1007/s00199-002-0336-1

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