Repeated insurance contracts and moral hazard |
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Authors: | Ariel Rubinstein Menahem E Yaari |
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Affiliation: | The Hebrew University, Jerusalem, Israel |
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Abstract: | An attempt is made to account for the frequently observed phenomenon of insurance companies offering discounts to clients who possess a favorable record of past claims. We argue that such discounts provide a mechanism which enables both insurer and insured to counteract the inefficiency which arises from moral hazard. |
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