THE COMPARATIVE STATICS OF DEDUCTIBLE INSURANCE IN EXPECTED-UTILITY AND NON-EXPECTED-UTILITY THEORIES

This paper identifies comparative statics results for insurance contra cts that distinguish between various models of decision making under r isk-specifically, expected utility, rank-dependent expected utility, a nd weighted utility. Insurance contracts offer full coverage above a d eductible. Firms offer premium schedules that give the premium charged as a function of the deductible; households choose both an insurance company and a deductible to maximize utility. A competitive equilibriu m requires zero expected profit for firms. We identify changes in the distribution of losses such that the optimal deductible increases for utility representations in a particular class but decreases for some r epresentations outside that class. We give results both for the demand for insurance, as well as for the equilibrium contract.