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- Title
ON ''SMALL SAMPLE'' PROPERTIES OF EXPERIENCE RATING INSURANCE CONTRACTS.
- Authors
Gal, Samuel; Landsberger, Michael
- Abstract
A profound characteristic of insurance contracts in important markets such as in the automobile industry, unemployment insurance, workers' compensation and others, is that they are very often based predominantly on experience rating. Having proved that a longer experience assures a strict improvement, if and only if, the utility function is strictly concave, shows that the intuition as to the effects of experience, may be misleading. Since one of the targets set in this paper was to provide a theoretical explanation of existing and widely spread experience rating insurance contracts, it is necessary to provide a contract design in which even short experience is worthwhile in terms of generating higher revenues. One may raise the question of whether the strict concavity of utility is necessary to assume that at each stage strictly larger profits can be obtained with a longer experience. They believe that the strict increasing monotonicity of profits in the length of experience incorporated into the premium structure is both interesting and important.
- Subjects
INSURANCE policies; PROPERTY insurance; INSURANCE; INSURANCE companies; CONTRACTS; UNEMPLOYMENT insurance -- Experience rating; AUTOMOBILE industry; UNEMPLOYMENT; SELF-insurance
- Publication
Quarterly Journal of Economics, 1988, Vol 103, Issue 1, p233
- ISSN
0033-5533
- Publication type
Article
- DOI
10.2307/1882652