Research of two-period insurance contract model with a low compensation period under adverse selection |
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| Authors: | Ben-jiang Ma Jing-yu Ye Yuan-ji Huang Muhammad Farhan Bashir |
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| Affiliation: | 1. School of Business, Central South University, Changsha, China;2. College of Tourism and Cultural Industries, Hunan University of Science and Engineering, Yongzhou, China |
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| Abstract: | The phenomenon of adverse selection caused by asymmetric information dominates the insurance market. In this paper, based on principal-agent theory, we establish a two-period dynamic insurance contract model with a low compensation period. This model introduces the tools of a low compensation period and the increase and decrease in the bonus to identify the risk types of policyholders. We prove that this model can achieve a strict Pareto improvement relative to the two-period static insurance contract model with a low compensation period. Moreover, we also graphically analyze the conclusion, which can help insurance companies to design more comprehensive insurance contracts. |
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