Survey_Breuer_2005

Abstract

The article continues as follows: the next section presents the model using a framework introduced by Schlesinger (1987). It reports the fundamental result concerning the optimal design of an insurance contract for multiple losses without moral hazard and introduces multiple ex ante moral hazard, i.e., it is assumed that the insured’s self-protection activities cannot be observed by the insurer, who has to rely on proper incentives for self-protection instead. Section “The Case for Different Optimal Indemnity Schedules Under Multiple Ex Ante Moral Hazard” then looks at two special cases that provide some more specific insights for optimal indemnity schedules under multiple moral hazard. In order to provide a fairly general framework for studying the optimal design of insurance contracts, Schlesinger (1987) introduces a model in which there are one state (no. 1) of no loss and three states (nos. 2–4) of loss with size L2, L3, and L4 which are arranged such that L2 ? L3 ? L4. This framework (although conveniently simple) is flexible enough to allow analyses of a wide range of insurance contracts. For example one is free to define L2, L3, and L4 as the occurrence of a loss A, a loss B, and the simultaneous occurrence of both losses, respectively