Insurance contracts with imprecise probabilities and adverse selection

Summary. This article deals with optimal insurance contracts in the framework of imprecise probabilities and adverse selection. Agents differ not only in the objective risk they face but also in the perception of risk. In monopoly, a range of configurations that VNM preferences preclude appears: a pooling contract may be optimal, incomplete coverage may be offered to high risks, low risks may be better covered.Received: 1 November 2001, Revised: 15 April 2003, JEL Classification Numbers: D81, D82, G22.Useful suggestions by Emmanuelle Auriol, Bernard Bensaïd, Michéle Cohen, Isaac Meilijson and the anonymous referee are acknowledged. Correspondence to: M. Jeleva